U.S. Scrambles To Find Solution To AIG's Woes
MICHELE NORRIS, host:
From NPR News, this is All Things Considered. I'm Michele Norris.
ROBERT SIEGEL, host:
And I'm Robert Siegel. Today, oil prices fell sharply, the Fed refused to cut rates, and the stock market rallied. But there was little movement on a concern that's been hanging over Wall Street after the implosion of Lehman Brothers and the sale of Merrill Lynch. For the giant insurance company, American International Group, or AIG, time appears to be running out. The company is struggling to get the cash it needs to stay alive, and its credit ratings have been downgraded. NPR's Jim Zarroli has our report.
JIM ZARROLI: AIG executives spent the day closeted with federal officials in New York trying to come up with a way to raise the tens of billions of dollars they need. There was talk about a bailout from some big private banks and rumors that the Fed itself might step in to help. But nothing came to pass. AIG's former CEO, Hank Greenberg, appeared on CNBC to warn about what would happen if the company is allowed to go under.
Mr. HANK GREENBERG (Former CEO, AIG): If they don't get a bridge loan either from the private sector or the Fed, and if the rating agencies don't give them breathing space, then there's no alternative. And that would be a disaster.
ZARROLI: New York Governor David Paterson who has tried to help the company arrange financing said AIG is so big and does so much business around the world that a collapse would be felt everywhere.
Governor DAVID PATERSON (Democrat, New York): They have a trillion dollars in assets. I know that that would have to reverberate in a lot of other areas: small businesses, mortgages, hedge funds. I mean this is a catastrophic problem waiting if we aren't able to curtail it.
ZARROLI: AIG got its start as an insurance company. If the company is forced into bankruptcy, a lot of its policy holders will probably try to flee the company and get coverage elsewhere. The result, says analyst Donald Light of Celent Communications, would be a huge disruption throughout the industry.
Mr. DONALD LIGHT (Senior Analyst, Celent Communications): I think it will be an alarm clock going off for both individuals and businesses. Am I confident that this company, my company, is going to be around, you know, in one year or five years if and when I have to make a claim?
ZARROLI: But that would be just the beginning of the damage a bankruptcy might inflict. More so than any other insurance company, AIG also has substantial involvement in complex financial products like derivatives. As with other big Wall Street firms, the full size and scope of its potential losses isn't clearly understood, and unwinding its portfolio would take a lot of time, time the company doesn't really have. Doug Elmendorf is a former Fed economist now with the Brookings Institution.
Mr. DOUG ELMENDORF (Former Fed Economist; Senior Fellow, Brookings Institution): A number of the problems that arise if Bear Stearns or Lehman or AIG fail wouldn't be problems if you could do it all in slow motion. The difficulty is that these things often happen very quickly.
ZARROLI: A bailout would give the company time to sell off some of its assets in an orderly way and avoid a meltdown. But the murkiness of its portfolio seemed to scare investors away, and Bush administration officials refused to bail out another big financial firm. Analyst Donald Light said a federal bailout of AIG now would set a dangerous precedent. Like many people, he believes investors would be more reckless because they'll think the government will always rescue them from the consequences of the choices they make.
Mr. LIGHT: Would it be good in the short term to keep AIG afloat? Absolutely. From a public policy point of view, it's a much harder question.
ZARROLI: As investors waited to hear AIG's fate, its stock price fluctuated. Shares fell 60 percent on Monday. Today, they were down as much as 40 percent more. And there was a kind of sadness in Hank Greenberg's voice today when the former CEO talked about what had happened to his company.
Mr. GREENBERG: Most of my net worth was in AIG. You know, it was something I built from the beginning, and I never believed it's possible for AIG to become impaired, ever.
ZARROLI: Jim Zarroli, NPR News, New York.