AIG Insurance

[Stan]

With AIG insurance headed for bankruptcy, what does this mean for the employees of the Adventist Church?

(That is where the Church's pension plan is held)

[Amelia]

I have already taken a HUGE hit on my investments. I hope I can recoup the loss in time.

[Stan]

My concern is not so much the value of the stocks, but rather will they say,, "Sorry we spent the money you gave us on other things, now we are bankrupt.."

I am wondering if that is even a possibility with AIG

[rudywoofs (Pam)]

And it's the little shareholders who will be hit, not the CEO or Chairman of the Board for these companies.

Join the Enron Club. It's lots of fun.

[Nan]

Does the church in the US have all its eggs in one basket for the pension funds? Or does AIG organise the

various investments but as chief organiser leave everything exposed if it has difficulties?

[carolaa]

Supposedly the bankruptcy is affecting only the insurance entity of AIG and not the investment entity.

[fccool]

I wish it would only be the AIG. I don't want to alarm anyone, but it's time to prepare for some big changes in this country.

U.S. stocks tumbled, pushing the Standard & Poor’s 500 Index to the steepest drop since the September 2001 terrorist attacks, as Lehman Brothers Holdings Inc.’s bankruptcy and declining commodities increased speculation that credit-market losses and the economic slowdown will worsen.

Stocks erased more than $600 billion in value as financial shares in the S&P 500 decreased the most since at least 1989, according to data compiled by Bloomberg. American International Group Inc. sank 61 percent and Washington Mutual Inc. decreased 27 percent. Concern the U.S. is heading for a recession pushed oil lower, prompting a drop in energy stocks, and sent General Electric Co. down 8 percent.

…

The S&P 500 declined 59 points, or 4.7 percent, to 1,192.70, the lowest level since October 2005. The Dow Jones Industrial Average tumbled 504.48, or 4.4 percent, to 10,917.51. The MSCI World Index of developed-market equities slumped the most in six years while the 7.6 percent drop in Brazil’s Bovespa was the steepest since Sept. 11, 2001. The dollar weakened the most against the yen in a decade and two-year Treasury notes surged.

Debt-Ridden Alitalia in Crisis Talks

Via: CNN:

Efforts to save debt-ridden Italian flag carrier Alitalia were continuing Monday night amid warnings that flights could be grounded because of the airline’s inability to pay for fuel.

…

On Saturday Alitalia’s bankruptcy administrator Augusto Fantozzi warned that some flights could be grounded due to a lack of fuel supplies, AP reported.

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Paolo Scaroni, the head of ENI, Italy’s national oil company, also warned Sunday that Alitalia would not be provided with fuel supplies without cash up front, reuters.com reported.

—

Oil Down Sharply

Via: CNN:

Oil prices fell sharply Monday as Wall Street’s latest tale of woes added fuel to the economic slowdown that has been crippling demand for energy.

In addition, initial reports showed that Hurricane Ike did not do as much damage as was originally feared to the Gulf Coast region.

Oil was trading down $3.94 to $97.24 a barrel. It traded as low as $94.13.

The last time oil traded below $94.13 was Feb. 14, when the intraday low was $93.25, according to New York Mercantile Exchange. The last time that oil closed below $94.13 was Feb. 13, when oil settled at $93.27 a barrel.

Roubini: Goldman Sachs and Morgan Stanley Are Next

Via: Yahoo:

This morning, Roubini forecast another 20% drop in stock prices, and reiterated a prior view that there will be no major independent broker/dealers standing before this crisis ends. In other words, Goldman Sachs and Morgan Stanley should be seeking suitors today, or face a similar fate as Lehman later.

—

AIG Shares Fall 52%

Via: Reuters:

Shares of American International Group (AIG.N: Quote, Profile, Research) fell more than 50 percent in early trading on reports that the insurer had turned to the Federal Reserve for $40 billion (22.3 billion pounds) in bridge financing to ward off a liquidity crisis and ratings downgrades.

AIG shares dropped 52 percent to $5.82 on the New York Stock Exchange before recouping a bit to $7.41. The shares have fallen 80 percent this year and closed Friday at $12.14.

The up-front cost of insuring $10 million of AIG debt for five years jumped to $3.05 million from $1.3 million on Friday, in addition to annual payments of $500,000, according to Markit Intraday.

Over the weekend, AIG executives and New York state insurance regulators scrambled to find a way to boost AIG’s liquidity.

It was not clear early on Monday if and when a plan would be agreed on. A company spokesman did not immediately return a call seeking comment.

The insurer, which has incurred $18 billion in losses over the past three quarters from guarantees it wrote on mortgage derivatives, was hit on Friday by Standard & Poor’s putting the company’s credit ratings on negative watch, indicating a possible downgrade.

—

LEHMAN: LARGEST BANKRUPTCY IN HISTORY; LISTED MORE THAN $613 BILLION OF DEBT

Via: Bloomberg:

Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.

The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.’s insolvency in 2002 and Drexel Burnham Lambert’s failure in 1990.

Lehman was forced into bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks yesterday and the company lost 94 percent of its market value this year. Chief Executive Officer Richard Fuld, who turned the New York-based firm into the biggest underwriter of mortgage-backed securities at the top of the U.S. real estate market, joins his counterparts at Bear Stearns Cos., Merrill Lynch & Co. and more than 10 banks that couldn’t survive this year’s credit crunch.

“There is likely to be a domino effect as other firms and individuals who relied on Lehman for financing feel the effects of its meltdown,” said Charles “Chuck” Tatelbaum, a bankruptcy lawyer with Adorno & Yoss in Florida and former editor of the American Bankruptcy Institute Journal. “The whole thing is frankly frightening for the U.S. economy.”

Shares, Bonds

Lehman’s filing was made by lawyers from New York-based Weil Gotshal & Manges, led by bankruptcy lawyer Harvey Miller. The case was assigned to U.S. Bankruptcy Judge James Peck, according to court records. Peck was sworn in as a judge in January 2006. Before taking the bench, he served as co-chair of business reorganization at Schulte Roth & Zabel, and prior to that was a partner at Duane Morris, according to the court’s web page.

Lehman shares at 9:39 a.m. dropped 92 percent in New York trading to 29 cents from their $3.65 close on Sept. 12. UBS AG, HBOS Plc and Axa SA led a decline of more than 3 percent for European stock markets on speculation a forced sale of Lehman’s assets may lead to further writedowns at other banks.

Benchmark gauges of corporate credit risk rose by a record in Europe, and traded at an all-time high in North America as investment banks sought to minimize losses from Lehman’s collapse. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt.

60 Cents

Lehman bondholders may get about 60 cents on the dollar if the investment bank is forced into liquidation, analysts at CreditSights Inc. said. The filing is by Lehman’s holding company and won’t include any of its subsidiaries. Lehman owes its 10 largest unsecured creditors more than $157 billion, including debts to bondholders totaling $155 billion.

The largest single creditor listed in today’s filing is Tokyo-based Aozora Bank Ltd., owed $463 million for a bank loan. Other top creditors include Mizuho Corporate Bank Ltd., owed $382 million, and a Citigroup Inc. unit based in Hong Kong owed an estimated $275 million. Lehman listed $639 billion of assets. New York-based Citigroup and The Bank of New York Mellon Corp. are among trustees for bondholders who Lehman owed about $155 billion.

London-based Barclays, which emerged as a leading candidate to acquire Lehman, pulled out first yesterday, saying it couldn’t obtain guarantees from the U.S. government or other Wall Street firms to protect against losses on Lehman’s assets.

Three Hours Later

Bank of America Corp. withdrew about three hours later, before saying it would acquire New York-based Merrill Lynch. Brokers sought yesterday to consolidate trades linked to Lehman to minimize the impact of a bankruptcy filing.

—

Industrial Output Plunges by Largest Amount in 3 Years as Auto Production Falls Sharply

Via: AP:

Government data show the nation’s industrial output plunged in August by nearly four times the amount that had been expected. It’s the worst performance since Hurricane Katrina devastated the Gulf Coast in 2005.

The Federal Reserve reported Monday that industrial output dropped 1.1 percent last month, far worse than the 0.3 percent decline that economists had been expecting.

The weakness was led by an 11.9 percent drop in production of motor vehicles and parts, reflecting the hard times facing the U.S. auto industry.

The problems in autos contributed to a 1 percent overall drop in manufacturing, the first decline since a 0.9 percent fall in April.

—

Central Banks Injecting Billions Into Markets

Via: AFP:

The US Federal Reserve, European Central Bank and Bank of England injected tens of billions of dollars into money markets after the fall of the banking titans under the weight of the massive financing of bad loans.

Paulson, who took part in weekend discussions in New York, said the actions “will be critical to facilitating liquid, smooth functioning markets, and addressing potential concerns in the credit markets.”

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U.S. Equities Will Open Sharply Lower, Steepest Drop Since 2002

The PPT will be out in force today. Forex traders, be on the lookout for an emergency rate cut. It could happen since so many people are getting bloody on this one. EUR/USD is orderly so far.

Via: Bloomberg:

U.S. stock-index futures tumbled, pointing to the steepest retreat by the Standard & Poor’s 500 Index since September 2002, as the bankruptcy of Lehman Brothers Holdings Inc. fueled speculation that turmoil in the credit markets will deepen.

Lehman, once the fourth-largest U.S. investment bank, plunged 90 percent after the 158-year-old firm’s subprime mortgage losses pushed it into the biggest bankruptcy filing in history. American International Group Inc. retreated 47 percent and was poised to erase 47 points from the Dow Jones Industrial Average as the biggest U.S. insurer sought capital, while Bank of America Corp. slumped 14 percent after agreeing to buy Merrill Lynch & Co. for $50 billion. Stocks fell across Europe and Asia, while U.S. Treasuries surged.

“It’s all basically going down the drain,” said Franz Wenzel, who helps oversee about $830 billion as deputy director for investment strategy at Axa Investment Managers in Paris. “The rhythm of the shoes that drop has accelerated. That’s what we follow with caution.”

S&P 500 futures expiring in December declined 44.70 points, or 3.6 percent, to 1,213.80 at 8:30 a.m. in New York, paring a decline of as much as 4.4 percent. Dow average futures sank 339 to 11,112, and Nasdaq-100 Index futures decreased 44.75 to 1,734.75. Europe’s Dow Jones Stoxx 600 Index lost 3.8 percent, the most since March.

The S&P 500 has decreased 20 percent since an October record as worldwide bank losses from the first nationwide decline in U.S. home values since the Great Depression reached $513.6 billion.

Rate-Cut Bets

Yields on two-year Treasury notes fell below 2 percent for the first time since April, as traders in futures contracts gave 78 percent odds the Federal Reserve will cut its benchmark interest rate to 1.75 percent by tomorrow.

—

Most of Europe Down Between 4% and 5%

[carolaa]

I agree with you. Which is one reason I'm so concerned about the direction of U.S. leadership in the world, as I have ranted about in the World Affairs forum. The rest of the world is not stupid; it is only our own citizens who cannot (or don't want to) see the handwriting on the wall.

[Amelia]

Fed announces deal to take over ailing AIG

$85 billion loan would give central bank 80 percent stake in insurance giant

AP

2 hours, 6 minutes ago

NEW YORK - In a bid to save financial markets and economy from further turmoil, the U.S. government agreed Tuesday to provide an $85 billion emergency loan to rescue the huge insurer AIG. The Federal Reserve said in a statement it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.

It also could "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said.

http://www.msnbc.msn.com/id/26746909/

[Amelia]

Federal bank insurance fund dwindling

If Washington Mutual fails it may require loan from the Treasury Dept.

AP

Sept. 16, 2008

WASHINGTON - Banks are not the only ones struggling in the growing financial crisis. The fund established to insure their deposits is also feeling the pinch, and the taxpayer may be the lender of last resort.

The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation's largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.

Treasury has already come to the rescue of several corporate victims of the housing and credit crunches. The government took over mortgage finance companies Fannie Mae and Freddie Mac, and helped finance the sale of investment bank Bear Stearns to J.P. Morgan Chase & Co.

http://www.msnbc.msn.com/id/26747301/

[Woody]

Anyone for a bowl of ice cream....wait that might be of the devil....lets see, I bet the Hurricane was Gods judgment on the city of Houston....or....or....think I'll just curl up in a ball and die!

I like your views of things CoAspen ....

[Bravus]

Meh, what's another 100 billion here or there on the taxpayers' Chinese credit card?

[Woody]

Meh, what's another 100 billion here or there on the taxpayers' Chinese credit card?

You have an interesting view of things Bravus!

[LifeHiscost]

"Men's hearts failing them for fear, and for looking after those things which are coming on the earth" On the earth, nations will be in anguish and perplexity at the roaring and tossing of the sea. People will faint from terror, apprehensive of what is coming on the world, for the heavenly bodies will be shaken. At that time they will see the Son of Man coming in a cloud with power and great glory.

Luke 21:25-27 KJV

"Those trusting on their wealth, And in the multitude of their riches, Do shew themselves foolish." Psalm 49:6 YLT

"He that trusteth in his riches shall fall; but the righteous shall flourish as a branch."

Proverbs 11:28 KJV

"For where your treasure is, there will your heart be also" Matthew 6:21 KJV

"From this time many of his disciples turned back and no longer followed him.

"You do not want to leave too, do you?" Jesus asked the Twelve.

Simon Peter answered him, "Lord, to whom shall we go? You have the words of eternal life."John 6:66-68 TNIV

Regards!

[fccool]

RUSSIAN STOCK MARKET CRASHES, CLOSES

September 17th, 2008

Via: Financial Times:

Russian shares suffered their steepest one-day fall in more than a decade on Tuesday, losing up to 20 per cent, as a sharp slide in oil prices and difficult money market conditions triggered a rush to sell.

The heads of the Russian central bank, the finance ministry and the financial market regulator met on Tuesday night for an emergency discussion on ways to halt the crisis.

Earlier, trading had been suspended on both the Micex and RTS stock exchanges as investors ignored assurances by Russian officials and a cycle of distrust set in amid liquidity fears.

Margin calls forced domestic traders to liquidate positions and brokers pulled credit lines. At least one Moscow bank failed to meet payments.

The rouble-denominated Micex Index closed 17.75 per cent down, the sharpest one-day drop since the August 1998 financial crisis, while the dollar-denominated RTS index closed down 11.47 per cent, its lowest lvel since January 2006.

Interbank money market rates climbed to 11 per cent, their highest since a mini-banking crisis in summer 2004.

Chris Weafer, chief strategist at Uralsib investment bank: “We’re in completely uncharted territory where the prevailing emotion is of fear and numbnes. No one knows where this could stop”.

Alexei Kudrin, finance minister, insisted that the financial system was not in a systemic crisis but the central bank injected a record $14.16bn in one-day funds into the money market.

The finance ministry also placed an additional R150bn ($5.8bn) in one-month deposits into the banking system. Konstantin Korishchenko, central bank deputy, told Russian news agencies that the bank and the finance ministry could provide a total of $117.6bn in liquidity to the banking sector.

But market players said banks were ceasing to lend to second and third-tier companies and brokers were pulling credit lines. KIT Finance, big Moscow investment house confirmed rumours that it had been unable to make payment on a series of short-term loans.

It said: “In connection with the fact that a series of our clients did not meet their obligations to our bank, we have not met our obligations to our counterparties.

“We recognise our responsibility to our counter-parties and to the market and we are working intensively to resolve the situation.”

Andrei Sharonov, managing director of Troika Dialog, a Moscow investment bank, and a former deputy economic minister, said: “This is a vicious circle,” said , .

“It is a situation of total mistrust. The liquidity crisis is being caused by a crisis of confidence in which people are frightened to borrow and frightened to lend.”

Shares in Russia’s biggest state-controlled banks led the slide with Sberbank, the state-controlled savings bank, closing 21.72 per cent down and VTB losing 29.26 per cent. The bank was suffered on investor fears about its securities portfolio, which makes up about 10 per cent of its assets.

[fccool]

It's funny seeing the big wigs not learning from history. The same thing happened in Germany in 1920s. The injection of "liquidity" was the answer to crisis prevention, and then a couple years later people were throwing all of that "liquidity" into the stove to keep warm as hyperinflation set in.

We see the same things going on today. The only answer that anyone has as far as preventing the financial crises is injection more "liquidity", or basically flooding the countries in new unbacked debt money.

All I can say, stock up on some food now, because in couple months it might be %20 more expensive. It's not a matter of "alarmism", but of reason and caution. Story of Joseph comes to mind.

[Woody]

With AIG insurance headed for bankruptcy, what does this mean for the employees of the Adventist Church?

(That is where the Church's pension plan is held)

AIG mostly just manages the funds. From what I understand there is about 13% that AIG actually has of the funds.

[Tom Wetmore]

Actually that is not entirely correct. AIG Retirement, (formerly VALIC) is a separate subsidiary corporation from AIG Insurance. And its ratings by the various ratings companies continues to be strong and does not appear to be threatened by AIG's downgrade. AIG Retirement serves the Church's defined contribution pension plan by being a 3rd party administrator/record keeper. It doesn't manage or invest the funds It is required to hold in trust any plan assets that it may handle in the process of administering the flow of contributions into the plan and on to the various investment funds. There is one fixed income default investment fund option that is an AIG related fund. (That is the 13% that Redwood mentioned.) I understand that it is backed by the general assets of the AIG VALIC's general funds. None of those assets would be available to the creditors of AIG.

Tom

[Woody]

Tom. Thanks for helping to clarify the mess. I appreciate knowing that.