Financial Crisis Of The Century
Are we in the midst of a financial crisis of the century? Yesterday former Federal Reserve chief Alan Greenspan says the “once-in-a-century” financial crisis that is likely to claim more big firms before it eases.
Already having claimed investment bank Bear Stearns, mortgage giants Fannie Mae and Freddie Mac, and left 100 year old Wall Street institution Lehman Brothers filing for bankruptcy. Lehman Brothers suffered nearly $7 billion in real estate-related losses.
Another potential victim is American International Group, AIG. It is hit by a series of credit rating downgrades. AIG is scrambling to raise capital after losing more than $18 billion in the past nine months. The credit downgrades could doom its business as it makes the company harder to issue debt and obviously harder for it to regain the confidence of investors.
How bad is the AIG mess?
The New York Times reported late Sunday night that the company is seeking a $40 billion bridge loan from the Federal Reserve. A source close to the firm said that if AIG does not raise cash and is downgraded by ratings agencies, it may have only 48 to 72 hours to survive.
The reason AIG got into this mess is that it strayed from its core assurance business, took on massive debt to keep profits growing to Wall Street’s expectation. AIG shars has dropped 91% so far this year.