Word: lehman
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After establishing a supposed hard line against bailouts over the weekend with Lehman Brothers, the government abruptly abandoned it Tuesday and announced an $85 billion Federal Reserve loan to insurance giant AIG. The explanation: AIG was deemed too huge (its assets top $1 trillion), too global and too interconnected to fail...
...That, and the fact that unlike with Lehman - where the possibility of failure was openly discussed for months and to a certain extent planned for - federal officials and market participants don't seem to have really focused on AIG's problems until this week. While the company's insurance subsidiaries are regulated by New York insurance superintendent Eric Dinallo, it is overseen at the holding company level by the federal Office of Thrift Supervision, which mostly regulates the savings and loan industry. Plus, it was awfully hard for outsiders - and even insiders - to understand the gravity of the company...
...extinction-level event as the financial markets have seen since the Great Depression," wrote money manager Michael Lewitt in Tuesday morning's New York Times. There's also the fact that through its insurance policies AIG touches far more regular Americans (and consumers around the world) than Lehman Brothers did. Plus, AIG's insurance businesses make so much money that they could conceivably pay off the cost of the bailout within a few years...
...spoke with Alwaleed in Riyadh on Tuesday, as the world reeled from the shock of the Lehman Bros. bankruptcy. In his offices on the 66th floor of the iconic Kingdom Tower, the prince (a nephew of King Abdullah) seems a world away from the tumult in New York City. But a giant TV screen in his office was tuned to CNBC, and he conceded that his personal worth may have taken a hit with the stocks slide, though he stressed that he was doing well with investments closer to home...
...clearly, the financial sector in the U.S. is facing a huge crisis. When you have two big companies like Bear Stearns and Lehman vanish, and Merrill Lynch being absorbed, that tells you a lot about the difficulties being faced by the financial sector...