A look back...
Bloomberg excerpts:
“As an insurer, American International Group Inc. didn’t qualify for the Federal Reserve’s crisis-lending programs for banks. So when trading partners squeezed AIG for liquidity in 2008, the Fed gave the New York-based company two credit lines all its own, with a combined borrowing capacity of $122.8 billion.
AIG’s balance under the credit lines reached about $90 billion in October 2008, data show. By then, the U.S. Treasury Department had taken over AIG, making about $70 billion of separate capital injections during the crisis.
In January 2009, the company borrowed $16.2 billion from the Fed’s Commercial Paper Funding Facility. Bloomberg didn’t include the credit lines in its Fed-loan ranking because they weren’t available to a range of institutions and the borrower was never kept secret.
Peak amount of debt on 1/27/2009: $16.2B
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AIG FP (AIG Financial Products) raked in billions of dollars selling credit default swaps (CDS) during the housing boom. And they did not set aside adequate “reserves” to cover the potential of a hard down-turn in the market.
That hard down turn arrived when the housing bubble popped in 2007. And when the storm hit, AIG FP was sitting on $450 billion in CDS contracts. They could not ‘cover’ their counterparty obligations – to major fiduciary institutions like Goldman Sachs, Societe Generale, and many others. And those counterparties did not adequately verify that AIG had the unwalled reserves necessary to cover their massive exposure.
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The Fed then stepped right up to the plate… to cover those obligations – 100 cents on the dollar.
Note: The Fed “gave the New York-based company [AIG] two credit lines all its own, with a combined borrowing capacity of $122.8 billion.”
It is now time for the Fed to step up to the plate and provide one new credit line, a Citizens Credit Facility, to American families (who, by the way, did not ‘roll the dice’ with leverage speculation like AIG and other major Wall Street players).
It is time for U.S. citizens to be granted the same direct access to liquidity extensions.
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