...the currency market remains concerned about the fate of American International Group (NYSE: AIG), the largest U.S. insurer of assets.Remember, the Fed will do pretty much whatever it takes, legal or not, see posts below. Continuing with AIG, from DealBreaker:
"AIG could be a much bigger problem than Lehman Brothers," Resnick said. "If AIG cannot sell assets, a ratings downgraded would trigger a collateral call from debt investors who bought credit default swaps. If institutions like hedge and pension funds are uncertain that the hedges they established with AIG are in force, that could lead them to seek hedges elsewhere and/or sell assets to raise capital or reduce their market risk. It will not be a pleasant scenario."
Resnick said the Fed may have to intervene "to stabilize AIG, if it is convinced that a run on AIG or an AIG failure, would destabilize the financial markets." He added that he's confident that AIG will survive in some form, although they may have to sell some assets or restructure their operations....
Worse Than Investment Banks?
In the midst of the carnage of Lehman Brothers, and the semi carnage of Merrill Lynch, something scary seems to have gotten little press. What happens to annuity holders if a large insurer like AIG goes under? They aren't covered by the usual moral hazard suspects (FDIC, SIPC), and as insurers are generally regulated by state oversight, that leaves the state guarantee funds and the larger umbrella (more of a cozy club than a formal master fund, however) of the National Organization of Life and Health Insurance Guaranty Associations (NOLHIGA). (Forgive me, but all I can think of when I see that acronym is some strange combination of NAMBLA and my University's Lesbian and Gay Alumni group).In a very weak attempt to prevent moral hazard, most states forbid insurers from advertising the protection of the state guaranty association when marketing annuities. (That sort of brilliance must have its origins somewhere in the Carter Administration, I think). Moreover, most states limit recovery for annuity holders to a present value of $100,000. It doesn't take much calculating to see that 20 years of payouts on $100,000 isn't a lot of money....MORE
Totally Unconfirmed Rumor Of The Day Part IFrom Naked Capitalism:
"Buffett in advanced talks with AIG." (This seems marginally plausible, since Buffett loves insurance almost as much as he loves his whorehouses, and is perhaps just what the Oracle of O needs to feel like his old self again. But he while he has been everyone's favorite go-to lately for cash, he's also been a lot a huge tease. Lots of talk, not a lot of action.)
This post was modified from its original version due to the New York Times reporting that regulators were involved in discussions for AIG to take urgent measures to prevent a debt downgrade. Note the tone of the story at the Times (by Gretchen Morgenson and Mary Williams Walsh) presents the situation as more dire than a Sunday PM report at the Journal indicates. However, the Journal did not mention that regulators had become involved, so the Times may have better insight here....MORE
Finally, from 1440 Wall Street:
AIG: Buffett To The Rescue?
...Of course, the inevitable Warren Buffett rumors have started....will he get involved in the situation at AIG? We are only as strong as our weakest link, and AIG is it.
AIG stock plummets to below $9; Buffett now in rescue talks
The Insurance Insider