Everyone has an opinion. Especially given all the presidential political rhetoric of late, no one can seem to agree on anything. However, I am very relieved that the Federal Government has made available an $85 million credit facility available to AIG. While most small businesses don’t necessarily do business directly with AIG (The largest insurance company in the world), most are affected in some way because their trading partners are insured by AIG, or because of another connection of AIG’s broad range of insurance and financial services. AIG is so large and has so many services, it is practically interwoven into the fabric of our economy. Had AIG been forced into chapter 11 bankruptcy, tens of thousands of businesses would have been affected, possibly causing them to face significantly increased risk for losses if the carrier became functionally insolvent.
Perhaps worse, AIG has many hundreds of millions of dollars (perhaps billions) of individual’s retirement savings invested in it, either directly or through mutual funds that invest in AIG. Had AIG been forced to bankruptcy, the individual whose money was at risk would have been substantially hurt.
What the Fed did was to try to calm the financial markets, which with each passing day have been come closer to panic.
Unlike other recent government assistance to large banks, this one was quite different. The Federal government will earn an 11.3% interest rate on its loan. This return will benefit taxpayers. No other time in recent history has the Federal government asked a large company to pay such a high interest rate on borrowed money. The
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