Lehman's gone, could AIG really be next? Or are they "too big to fail"?
Answers
109 points
dslwong answered one year ago …
I think at this point "too big to fail" is a concept that can be thrown out of the window. Apparently if AIG is downgraded they will have 48 - 72 hours to live.
"Ratings agencies threatened to downgrade the insurance giant’s credit rating by Monday morning, allowing counterparties to withdraw capital from their contracts with the company. One person close to the firm said that if such an event occurred, A.I.G. may survive for only 48 hours to 72 hours."
251 points
MichaelShulman answered one year ago …
It's clear the company will have to sell a majority of its assets … or be bought or go bankrupt.
AIG was thrown a $40 billion line of credit by the Fed, while private equity firms looking to bid on certain assets pulled back.
In theory, the $70-billion fund that 10 major banks and investment banks announced will provide liquidity to participating banks that cannot get that liquidity from the Fed or other sources. Again, in theory.
We've seen that no one is too big to fall – only time will tell if the $70-billion can help, but trust me when I say that AIG is no value play right now. The whole sector is in shambles and won't rebound until we see some major improvement in the housing industry.
3963 points
MNSL answered one year ago …
I think at this point "too big to fail" is a concept that can be thrown out of the window
Dslwong Diffidently you are correct.
Top investment banks, property groups and top insurance giants all are struggling through out the world now.
I am really worry about what will happen to those who handover their money, superannuation. Retirements funds, property funds etc to these banks and insurance giants. Now most funds are underperforming and some funds are continuously freezing.
Currently some companies including top property groups cannot sell their assets. There are no buyers. In addition, they cannot raise capital as they wish now. Some of them cannot meet their working capital requirements and they cannot pay bank loans installments as well.
They have overinvested in unproductive areas and in same areas. When everybody becomes panic naturally assets prices will come down. They did not identify risk involved in some of the investments in advance. Finally, they put world financial systems in disarray.
I think there will be more bad news before it becomes better. Eventually financial sector will stabilize toward end of next year.
