AIG bailout doesn't change a thing

I think they should just merge with LIC.. :-)

Seriously its a $85B loan at 850 bps over Libor - which is around 2.9%? - so that's 11.4%. The Interest expense alone is $2.4B per quarter. The last 3 quarters their loss was $14B the only quarter they made money - they made about $3B. But lets say by some miracle they manage to make the interest payment.

Their B/S equity is 78B - so not only are they wiping that out they are effectively making the firm insolvent. I just don't see how this preserves the firm's credit rating, which was the original intent no? Admittedly the equity is book value but in this situation I don't expect a buyer to pay a whole lot more than book.

Which brings me back to my original point.. This doesn't change anything but it does give AIG's counterparties time to unwind their position, and maybe that's all that the Fed wants at this point. But you have to wonder that if it takes $85B (there's no way in hell that the loan is going to be repaid fully) to buy time, what sort of dis-orderly liquidation were we looking at?