Thursday, September 18, 2008

Why AIG Just Cannot Fail?

Why the U.S. Fed agreed to bail out American International Group (AIG) by lending them US$85 billion? This loan is to be repaid by the sale of the company's assets and in a condition whereby the Fed is to take an unprecedented 79.9% equity stake in AIG. The Fed is also empowered to influence dividend payouts. Remember the U.S. Fed chose not to bail out Lehman Brothers few days ago to prevent the investment bank from bankruptcy citing concerns of having to use taxpayers' money. Why this time round the U.S. Fed intervenes and help AIG starves off a bankruptcy? The answer to this is AIG is just far too big to fail. The reasons are many as below:
  • Over 103,000 employees
  • More than US$1 trillion assets
  • Collapse will mean huge cascading impact around the world in many sectors
  • Customer base is far too huge and wide and is going to impact the whole world
  • Consumer confidence will plunge drastically since it is to affect both the rich and poor

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