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Bailout Datapoint Of The Day Aig Edition

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by Felix Salmon
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Oct 03 2008 10:28am EDT

Bailout Datapoint of the Day, AIG Edition

Remember the $85 billion loan that the US government extended to AIG? It turns out the insurer really needed that much money after all:

The firm tapped about $61 billion of the federal credit line after saying Sept. 16 it would give the U.S. a 79.9 percent stake in exchange for the loan.

$61 billion is an enormous amount of money to borrow in the space of a couple of weeks, especially when it's being extended at highly punitive rates: Libor +850bp works out at 12.83%, given today's Libor fix at 4.33%. (Your daily TED update: an awe-inspiring 381bp.)

I have to admit I'm a bit unclear on what exactly they need the $61 billion for: I thought the CDS written by AIG Financial Products were the sort of instruments where you only needed to pay out in the event of a default. Did AIG write a lot of protection on WaMu? But maybe there were separate margin/collateral agreements too.

In any event, AIG has decided to reinvent itself as a property-and-casualty shop, selling off almost all its other businesses. The world will probably never see its like again.

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