AIG dipped into the Fed’s $85 Billion credit line as the company was unable to find appropriate private financing. The company also cut its dividend to common stockholders. The devil is in the details though; according to the agreement, AIG effectively never has to actually make another dime. If it needs money to make interest payments, it can just borrow from the credit line. I am sure that when the credit line is exhausted, it will quietly be extended ad infinitum. The government will own 79.9% of the company through preferred stock, will get 79.9% of any dividends paid, and will get to vote on shareholder matters even though preferred stock rarely enjoys voting privileges.
In other news, the $700 billion bailout plan is running into resistance. It is election time and the general upshot seems to be that if we’re going to sign away the entire kit and caboodle then we’d better make sure the little guy thinks he’s getting something besides just the bill. WIth that in mind, riders are being debated about executive salaries, the prevention of foreclosures (what about HR 3221?) and perhaps even another economic stimulus. Fed Chairman Bernanke and Treasury Secy Paulson yesterday tried their best to employ scare tactics saying that if the sweeping powers they requested aren’t granted immediately, and without revision, that terrible times would be upon us.. Sound familiar?