In SusanG's recent discussion with AIG's media relations guy I came across several disturbing discrepancies as to what I believed to be the "truth" on their humiliating bailout in September of this year.
The glaring one is when Peter Tulupman answered the very first question.
At what point will you consider yourselves "whole," and will you repay us with interest? I would like 18%.
No offense but 18% is laughable, however Peter's answer should be immediately forwarded to the Justice department:
We have a new credit facility from the Federal Reserve – our interest rate is LIBOR + 3%, which comes to about $3.6 billion a year in interest on this facility.
We’re also paying a fee of .75% on the undrawn portion of the facility.
The original loan details that were set up for AIG were LIBOR + 850 basis points (BPS)
3% would be 300 BPS and a massive reduction in their original loan requirement they signed with the NY Fed. So I went back into the FED's records and here is the deal:
Release Date: September 16, 2008
For release at 9:00 p.m. EDT
The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.
The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.
OK on top of that Peter said the amount of undrawn funds would be paid at an interest rate of 75 BPS. Well, I remember that the deal was original at 850 BPS and I was right (again)
And this fact drew me to this obscure FED press release that spills the beans on the transformation of a pro-tax payer bailout to a pro-AIG bailout at the expense of the tax payer.
the fee on undrawn funds will be reduced to 75 basis points from the current rate of 850 basis points.
So upon further reading of this FED press release we learn that the U.S. Treasury will purchase $40 billion of newly issued AIG preferred shares under TARP (part of the 750 Billion bailout), at a price of reducing AIG's line of credit by 25 billion to 60 Billion, but now the original 2 year 85 billion line of credit at 3-month LIBOR + 850 BPS, we have a 5 year window with 3-month LIBOR at 300 BPS at 60 billion.
W T F ! ! !
Oh wait and it get's even better...
Additional Lending Facilities
The Federal Reserve Board has authorized the New York Fed to establish two new lending facilities relating to AIG under section 13(3) of the Federal Reserve Act. These facilities are designed to alleviate capital and liquidity pressures on AIG associated with two distinct portfolios of mortgage-related securities.
Remember that's the same bullshit section used to write the original loan, now that same law is being used as reason to rewrite the loan...How convenient!
And the 2 new lending facilities?
Residential Mortgage-Backed Securities Facility
In one new facility, the New York Fed will lend up to $22.5 billion to a newly formed limited liability company (LLC) to fund the LLC’s purchase of residential mortgage-backed securities from AIG's U.S. securities lending collateral portfolio. AIG will make a $1 billion subordinated loan to the LLC and bear the risk for the first $1 billion of any losses on the portfolio. The loans will be secured by all of the assets of the LLC and will be repaid from the cash flows produced by these assets as well as proceeds from any sales of these assets. The New York Fed and AIG will share any residual cash flows after the loans are repaid.
Proceeds from this facility, together with other AIG internal resources, will be used to return all cash collateral posted for securities loans outstanding under AIG's U.S. securities lending program. As a result, the $37.8 billion securities lending facility established by the New York Fed on October 8, 2008, will be repaid and terminated.
Ohh OK so now, separate of the 750 billion bailout, and separate from the 60 billion dollar line of credit the FED is gonna create a LLC and buy back the toxic paper (MBS's) and all that AIG has to suffer to remove this toxic black hole is 1 billion?!?!
Do you see what this does? The FED, that means your money, is being funneled into an illegal LLC to buy back worthless Mortgage Back Securities (MBS's) so that they can be taken off of AIG's bottom line and because AIG is giving 1 billion as a subordinated loan, they will automatically loose the billion, because these MBS's are worthless, and the FED, you and me, loose the rest.
Ohh and it get's even better...
Collateralized Debt Obligations Facility
In the second new facility, the New York Fed will lend up to $30 billion to a newly formed LLC to fund the LLC's purchase of multi-sector collateralized debt obligations (CDOs) on which AIG Financial Products has written credit default swap (CDS) contracts. AIG will make a $5 billion subordinated loan to the LLC and bear the risk for the first $5 billion of any losses on the portfolio. In connection with the purchase of the CDOs, the CDS counterparties will concurrently unwind the related CDS transactions. The loans will be secured by all of the LLC's assets and will be repaid from cash flows produced by these assets as well as the proceeds from any sales of these assets. The New York Fed and AIG will share any residual cash flows after the loans are repaid.
Hello?
Hello?
Ok let's look at the CDS's market from Friday's close
This is the ABX.HE Indices (The ABX indices are based on credit default swaps (CDS) for various tranches of subprime mortgage-backed securities)
Dude that is Fu**ing devastating
And guess who is buying these falling knives? The FED, which is my money and your money.
So AIG is being bailed out by the FED with no congressional oversight and the FED is creating what appear to be illegal LLC's to buy these toxic securities with American taxpayer money.
The FED also says they will ignore a Freedom Of Information Request by Bloomberg News as to who is the recipient of the 2.12 Trillion in FED loans, and what is being used as collateral (which you all should be concerned about) that have occurred in the last 7 weeks.
Look at this chart showing how much the FED is lending out right now courtesy of CalculatedRisk
AIG and especially the FED are not telling us the true story, and their are many many questions to be answered.
This situation is so serious that I believe their needs to be a full investigation into the FED's lending facility, the creation of these obvious illegal LLC's that use tax payer money to buy these toxic assets from AIG with almost no risk to the counter party (AIG).