My question remains: can they give the shareholders less than they would have gotten in a bankruptcy?
The burden of proof may be on the government to show that the shareholders are better off with the 20% of net worth they are giving them due to the value added of the loan facility, vs 100% of the net worth in a straight bankruptcy.
Press Release
Release Date: September 16, 2008
For release at 9:00 p.m. EDT
The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under Section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.
The Board determined that, in current circumstances, 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.
The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.
The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
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Great question. Though in the case of AIG – the Treasury “offer” was approved by AIG’s Board. Not so for Freddie/Fannie.
“The burden of proof may be on the government to show that the shareholders are better off” BWAHAHA! LOL! I saw cindy sheehan try to fight city hall and da gubbmet – (the saying says not to fight city hall right?) And she got arrested.
Since when do da shareholders matter? Hank and his friends “the mangement ceo types” at all these companies are gonna look out for themselves first and the shareholders can look out for themselves. Really Warren, AIG BOARD gave some dooflunkie CEO 7 million for 3 months of work, and he didn’t do a very good job, holy farking Jezus – Mike Douglas was right in dat movie WALL STREET – people are SHEEP to get slaughtered – Jimi the founding fathers say suckers like you that take these anal rapes should pick up a gun and go get some justice – so what are you Jimi – are you a justice getter like george washington or are you a sheep that thinks it is OK for the AIG board to scratch their buddies backs while sticking a knife in yours? I predict you aint got the baltz Jimi to ever pick up a gun and do anything no matter how bad they rape you, you are wimpy sheeple. I am open minded though Jimi, and I would really like to know – SERIOUSLY – what would have to happen before you would be willing to pick up a gun and go shoot some authorita figure types? Can you define for me at what point is enough is enough? Or are you so brainwashed you haven’t even thought how farked up things have to get before you realize the cost of freedom isn’t free? Don’t feel bad if you are like dat, I know lots of sheeple that haven’t ever thought of that – but all the founding fathers rolling in their grave right now because one of the first constitutional ammendments was about keeping that THOUGHT top priority in your head.
You care to take a stab at it Warren? How much crookery and corruption would you take before you lifted a weapon?
PS I am a plant from da CIA jackals like da economic hit man Perkins, and we just trying to figure out how much we can screw you dummies before you will get violent.
MC- my point has been shareholders are at a major disadvantage as both management and govt. is incented to work against them.
Ironically, combine that with the fact that maybe 75% of voters are shareholders and many vote based on the performance of their holdings.