AIG Bailout Has S&P Futures Ramping Afterhours

Details are sketchy, but the Fed Reserve, led by Timothy Geithner, overruled Treasury Secretary Hank Paulson and worked out a deal to keep American International Group (AIG-NYSE) alive:

In an extraordinary turn, the Federal Reserve agreed Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people with knowledge of the negotiations.

The Federal Reserve and Goldman Sachs and JPMorgan Chase had been trying to arrange a $75 billion loan for the company to stave off the financial crisis caused by complex debt securities and credit default swaps. The Federal Reserve stepped in after it became clear Tuesday afternoon that the banking consortium would not be able to complete the deal.

Without the help, A.I.G. was expected to be forced to file for bankruptcy protection. NYT

An insurance company is outside of their usual regulatory scope, but anything goes with the current crop of regulators. An orderly liquidation, perhaps even a partial one, should allow the bridge loan to be paid back.

Of course, those of you short the indices might need a bailout of your own...S&P 500 futures are just under 1228 going into 8PM and stock in the new state owned enterprise is trading around $2.50 despite the potential massive dilution holders of the common stock are facing.

I will continue to monitor the newswires, perhaps a hedge fund caught short Wednesday morning can apply for a bailout of their own. Only the shadow knows where this will stop, but Geithner has clearly assumed the Alpha Male role in the Working Group, and in telling Paulson to stand down the head of the NY Fed willl no doubt attract the ire of Libertarians from coast to coast, who will no doubt be emboldened now that they can crawl out of their foxholes.

The more pragmatic on Wall Street might want to begin trying to figure out where the stock can trade longer term, and start gaming the associated pin action.

Hopefully the buck stops here, with this deal. Longtime AIG CEO Maurice Greenberg will be on Charlie Rose tonight pleading his case; much like a woman scorned he cannot let go.

They could write a movie about this plotline...an insolent CEO demands $100 billion for an evil empire that bows to no one and is run completely under the radar with little or no transparency.

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Hank on Charlie Rose

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Fed to Give A.I.G. $85 Billion Loan and Take 80% Stake
NYT
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