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The Federal Reserve acquires a majority stake in AIG PDF Print E-mail
FXstreet.com (Barcelona) – Despite the initial reluctancy to act in order to rescue private banks, the Federal Reserve has given AIG, American International Group a $85 billion loan, which gives the government a majority stake in U.S. biggest insurer.

This one has been a controversial decision, having in account the Federal Reserve’s initial opposition to interact in private banks’ affairs, as it was manifested in Lehman Brothers’ allowed failure. The Government’s official position has been to observe ongoing events as part of the financial markets’ well needed correction.

In the AIG’s case, the Federal Reserve has defended the action adverting that “a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance.”

Te main goal of the loan, according to the Federal Reserve is to make possible for AIG to meet its obligations as they come due. This loan will make possible for AIG to face the necessary process of selling some of its businesses in an orderly manner, and, thus, producing the least possible disruption to the overall economy.

The Government gets now a 79.9% stake on AIG, and according to the Federal Reserve, the insurer will repay the Central Bank with the sale of the firm’s assets, and the U.S. Government, as its major shareholder, will have the right to veto payment of dividends to common and preferred shareholders.

The move not brought calm to forex markets, which, according to Valeria Bednarik, analyst and foreign manager at MolFX – Management, the Euro and GBP go through some volatile sessions in the forth coming days: “after this I expect some consolidation in Eur and Gbp, but I can not see further loses in the short term. Bigger charts are set for an upside correction in both currencies against greenback, although I expect high volatility to continue in the next couple of days: market remains "nervous" without finding a certain way. As I say at the begining i believe dollar strengh is more it's counterparts weakness than other thing, Japanese Yen should be left aside of this analysis.”


Posted originally: 9/17/2008 7:58:00 AM

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