Many people today, including myself, reacted with shock that the fed was going to bail out AIG with $85B in money.
A closer look, however shows that its not so bad, and that the government might even make money off this deal.
How is this possible? Because the fed is charging AIG a variable interest rate on the money, currently at 11.31% (LIBOR + 8.5%). If AIG pays this off over a 3 year period (instead of liquidating many of its assets), it will amount to $19 billion in interest. Not such a bad deal for the fed.
AIG may be playing with the devil's tail in this case though. Just as borrowing from Tony Soprano has its downsides, if AIG defaults on this loan the feds would likely make a broken knee cap look like a bee sting.
1 comment:
This sounded bad at first but this could be a money maker or the US. They may have been a smart move.
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