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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

December 27, 2010 at 10:20 AM

For AIG, credit where credit is due…we hope

American International Group this morning announced $4.3 billion in credit lines from 36 lenders. Chief Executive Officer Robert Benmosche, in a prepared statement, called the deals “another important vote of confidence by the market in AIG.”

He went on, “These credit facilities, combined with the debt offering and contingent liquidity facility, demonstrate that AIG has momentum and has made substantial and impressive progress this year. As we approach year’s end, we believe we are close enough to completing our recapitalization plan that we can see the finish line.”

Yes, it’s that AIG. The one taxpayers partly own, although most of us won’t get invited to summer parties at the Hamptons. We own it because the company’s near meltdown in 2008 posed such a danger to the entire financial system that the feds had to bail it out with $85 billion — although the total federal backstop provided as the crisis unfolded was much higher.

AIG taught us about “credit default swaps,” the highly complex “insurance” purchased by banks and other playerz on their highly complex derivatives. Only when much of the bubble turned out to be derivatives based on swindles and liar-loan mortgages, which started a fire sale on other assets…AIG couldn’t pay. The brainos at Treasury and the Fed — the regulators we supposedly shouldn’t need in a “self-correcting market” — seemed late to realizing that AIG could bring down the whole economy.

Since then, AIG has brought in new management, sold off units and said it’s ready to begin paying off its Fed loans. Next: the government can start to sell its stake. Even during the crisis, it was a venerable, mostly well-run insurance company that was brought low by one unit’s genius “financial engineering.”

Still, so many questions remain. Recall that AIG repaid Goldman Sachs in full for its bad bets, even after the government rescue. This while millions were losing jobs and homes. With so few prosecutions coming out of the financial panic, with jobs still scarce and incomes down, with many dodgy “financial innovations” still ticking, average Americans might not be ready to celebrate.

Today’s Econ Haiku:

The bulls are frozen

As a blizzard hits Wall Street

Investors can chill

Comments | More in Bailout, Federal Reserve

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