Brace your self; the financial markets are about to face a meltdown, aided in part by Ike.
While we were all looking at McCain making a fool of him self on The View American International Group (AIG) lost over 30 percent of its value today! For those of you who don’t know who AIG is, they are the largest property casualty insurance carrier in the world, $800 Billion in assets (that must now be only $500 billion). The reason for AIG crashing is simple, the sub prime mess. The same thing that has been dragging down Fannie and Freddie.
Link to ticker:
http://finance.yahoo.com/...
But it’s a bit more than that, AIG has got to the point where they can not raise money (borrow) in the market, their paper is heading to junk status, for an insurance carrier that is the death knell.
Why should we care? Well first off most people will discover that their 401k just took a hit, almost every one has a small piece but more importantly Ike is heading to the gulf coast. The insurance industry has almost $1 trillion in covered property sitting directly in the path of Ike; AIG has a huge chunk of that. If AIG goes under people who thought they had coverage may find them selves uninsured.
AIG and its many subsidiaries mostly does large commercial and institutional properties, offices, refineries, schools, hospitals, and retail. There is likely to be a lot of property damage after Ike clears. Those people have taken out insurance policies that cover not only property damage but also business interruption costs. If the insurance carrier is not there to pick up the tab then not only will property not get repaired but businesses will go under. Not just the mom and pops, big businesses.
The impact of the financial markets on AIG are bad enough, add in the major losses expected from Ike and it is highly questionable if they will survive. That will have a devastating impact on the rest of the economy, especially when combined with Lehman Brothers, Bear Sterns, and countrywide. There are a lot of banks at risk right now, over 100 by some estimates. Depending on the losses from Ike that number could significantly increase, especially if the losses are not covered due to the failure of the insurance carrier.
This is shaping up to be a very rough weekend and week ahead in the financial sector, real estate investment trusts, insurance sector, and several knock on areas. This could drag the entire financial sector down even further and significantly prolong any recovery by a major time period, as in years. Yes it does impact you directly, including increased premiums. And yes it does all come back to Phil Grahams pleading for deregulation, it all comes back to mortgages and high risk investments, free markets run by greedy individuals who look at only this month’s return and their bonuses.
Of course it’s much more fun to discuss the lipstick issues, pardon the interruption. You may now return to your regular programming discussing Ms Palin and how close she is to Russia.