LLR Pages

Monday, September 15, 2008

Shattered AIG

In the wake of the fall of Wall Street's banks, the American International Group (AIG), this ridiculously government-leveraged insurance firm, has been downgraded by Moody's Investor Service from Aa3 to A2 and Standard & Poor's from AA- to A-.

Bloomberg, which reported on this latest move, also points out:

S&P said it cut the rating of the largest U.S. insurer by assets because of a "combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses."

S&P also lowered AIG's short-term counterparty credit rating by two levels to A-2 from the top A-1+ rating, and cut its counterparty credit and financial strength ratings on most of AIG's insurance operating subsidiaries by three notches to A+ from AA+. The ratings remain on watch for a possible further downgrade, S&P said.

I think S&P's rating is highly unrealistic, simply because it's far too moderate. Moody's is somewhat more sensible than S&P's. Here's my rating for AIG: SHATTERED. That seriously destroys the illusion that the government, especially the Fed, can "save" free enterprise. Considering Leviathan and the Fed are not bailing out Merrill Lynch and the Lehman Brothers (or at least those organizations say they won't do it, at least not directly), the people who had those accounts with those banks or had FDIC securants and would have otherwise lost their deposits would have the Fed create that money out of thin air and deposit it into another bank, despite the fact that money had already been created out of thin air in the first place. Interestingly enough, the FDIC has already approached the Treasury and said they need more money because they can't insure all the deposits.

This political and financial quagmire shows the reality of the damage done by the Greenspan-Bernanke boom. How exciting it is to see the Fed and the Treasury being helpless to "save" their biggest subsidized pals!