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Tuesday, September 16, 2008

AIG gets Federal Backing

As always plenty of news, but the spin will likely be up for next few days as the latest crisis is being averted.
AIG get 85 billion dollar loan from the federal government.
As usual, the bailout effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions it does business with. From my understanding, the government will effectively own AIG through it's stock.

As I said in a previous rant, once US has taken on over 15 trillion dollars in liabilities, adding 100 billion here and there is peanuts. The US could "assist" 15 companies at 100 billion each and increase the debt by only 10%.

The stock market may rally on this news, or perhaps the stock market will eventually realize that once the government buys/owns a dozen major financial institutions, that it won't be good for business. To date, 11 banks, Fannie, Freddie, AIG, and "Fed interest" in Bear Sterns as well as many companies by providing cash for "questionable" assets and stock as collateral.

But for now, its good news, as the next debacle is delayed for another day. And the bottom is not in long term. All of this government intervention will not play out to another boom in the economy.

I believe that interest rates will rise due to all the debt creation, which of course, will hit the common person. Just maybe not today. This is also setting up a potential pattern where Hedge Funds may systematically take companies out to the woodshed, profit from their demise, and have the government cover the debt.

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