Everyone make it through yesterday's massacre? Good. Welcome to Day Two: It's as big of a clown show as yesterday.
Mama said there'd be days like this ...
Investors' fears came true Monday night, as insurance giant AIG
The implications here could be massive. AIG's balance sheet holds far more than $1 trillion in assets -- about $400 billion more than Lehman Brothers
There could be a solution to this, though: Lend AIG money. A lot of it. Most estimates suggest the company needs something in the neighborhood of $75 billion to stave off a looming bankruptcy. The bad news? It needs that money A.S.A.P., and where it'll come from is anyone's guess. To be blunt, there's little chance of AIG making it through the week unless it finds someone with enough bravado to lend it tens of billions of dollars.
So what now?
Two possibilities arise: Either the Federal Reserve can make an emergency loan, or AIG can borrow from other banks. The first option is a long shot; just hours after the Feds let Lehman fail, it seems mad that AIG would suddenly be entitled to a bailout.
Besides, opening up government coffers to an insurance company like AIG would create a whole new chapter in the credit crunch. If insurance companies get the privilege, who else should? Hedge funds? Pension funds? General Motors
The second option (borrowing from other banks) is also a shot in the dark, but it seems like the only option. The Wall Street Journal reports that the Fed has asked Goldman Sachs
The bad news isn't over
In other news, Washington Mutual
At any rate, the latest developments make a few things clear: The Federal Reserve is pretty much over the bailout business, essentially telling Wall Street, "Sorry, this is your problem." What that means for AIG and WaMu should shape how the market pans out in the coming weeks.
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