Oil's energy contribution has declined by about 12% since 1999. The world's economies have also declined by about 12%. (Using conventional metrics, which are time delayed determinations, this will only be seen in hind sight). The massive destruction of asset values now occurring testifies to it happening.
Peak is well behind us, world economies have peaked and will continue to decline.
Posted: Tue Sep 16, 2008 2:21 am Post subject: Re: Will the world economy collapse Tuesday?
the indirect employees have to be taken into account,e.g the plumber who was paid directly by AIG and the employees bought maybe their meat at the butcher ...that's considerably more.
Posted: Tue Sep 16, 2008 4:36 am Post subject: Re: Will the world economy collapse Tuesday?
Will the financial atomic bomb be dropped today? link
Quote:
COULD THIS BE THE BIG ONE?
Scarcely a day after the stunning news of the bankruptcy filing by Lehman Brothers and takeover of Merrill Lynch by Bank of America, arguably an even greater threat to global financial stability is being posed by American International Group (ticker: AIG).
The nation's largest insurer by assets was seeking a financial lifeline after its credit rating was lowered by Fitch Ratings, Standard & Poor's and Moody's Investors, an event that could force AIG to, in effect, meet a $14 billion margin call on credit-default swaps it has written.
The Federal Reserve was working with JPMorgan Chase and Goldman Sachs to arrange a massive loan package of up to $75 billion to stave off a severe liquidity crisis at AIG, according to published reports. But reflecting the parlous situation, its shares plunged 61% Monday while the cost of insuring AIG debt soared to astronomical levels.
"The move highlights the circular dilemma facing financials with capital concerns," writes Bank of America credit analyst Jeffrey Rosenberg. "The lack of capital-raising prompts a downgrade, further worsening the credit risk of the company, further constraining the capital-raising potential."
The downward spiral also extends to the equity side. The sliding stock price makes the cost of raising equity capital and the potential dilution of current shareholders prohibitive, while the inability to raise capital further pressures the stock price.
The downgrades came despite the New York State Department of Insurance freeing $20 billion from AIG subsidiaries to bolster the parent's liquidity. Regulators usually oppose such moves but New York Governor David Paterson called the situation "dire."
But the Fed reportedly turned down a request for a $40 billion loan to AIG, instead sought JPMorgan and Goldman to arrange a $75 billion financing package. Whether such a huge loan could be arranged virtually overnight was far from certain.
That's reflected in the draconian price being exacted to insure AIG debt in the derivatives market. The all-in cost virtually doubled, to a 1722 basis points, an increase of 820 basis points, according to Tim Backshall, chief strategist at Credit Derivatives Research. That would normally translate to a cost of $1.722 million annually to insure $10 million of AIG debt for five years. But, because the market fears an accident sooner, AIG CDS require an upfront payment -- some $3.05 million -- plus $500,000 annually.
That reflects what AIG is up against. While its credit ratings remain well within investment-grade range, the downgrades could result in AIG's counterparties demanding an additional $14.5 billion in collateral -- in effect, a margin call, according to an SEC filing made last month, according to published reports.
What would happen in that event could be catastrophic. A bankruptcy filing by AIG would have more far reaching consequences than Lehman's. Yet the Fed and the Treasury have drawn a line in the sand against further bailouts after Fannie Mae and Freddie Mac and Bear Stearns last March.
That leaves the fate of AIG in the private sector's hands, at least nominally.
The Fed has further expanded the range of assets against which it will lend through its Primary Dealer Credit Facility, its vehicle for lending to investment banks. Even equities are eligible collateral as opposed to only investment-grade debt securities previously. The Fed also will swap Treasuries for all investment-grade debt, not just triple-A quality securities.
Could banks somehow use such facilities to advance money to AIG? Doesn't sound quite kosher but so many things have been contrived since the credit crisis began that who knows what regulators might try to do through the back door now that they've closed off a front-door bailout.
Coming on the heels of a 4% plunge in U.S. stocks Monday, the worst since the Sept. 11, 2001, terrorist attacks, and even steeper declines in Asia early Tuesday, it's unlikely that the tag team of Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke would stand idly aside if AIG is seen to bear out Warren Buffett's characterization of derivatives as "weapons of financial mass destruction."
My guess? They haven't run out of tricks yet, as the second-to-last paragraph says. Let's give the roulette another spin and see what comes out...
Posted: Tue Sep 16, 2008 5:08 am Post subject: Re: Will the world economy collapse Tuesday?
miskatonic wrote:
AIG employs something like 120,000 people. It is worth about 5 times more than WaMu and Lehman Brothers. So yeah if AIG goes down it will really hurt.
If AIG goes down, that will have more widespread damage than anything so far. As an example, this impact on Australia, and probably similar for everyone else:
Quote:
Aequs Securities Institutional dealer Ric Klusman said the "big risk'' to the Australian market was whether AIG, with its $US1 trillion in assets, failed. AIG is seeking an emergency $US70 bailout from the US Federal Reserve, which at the weekend refused to provide financial support to Lehman.
"If AIG fails, it's the world's largest insurance company and everybody has exposure one way or another,'' Mr Klusman told AAP.
Posted: Tue Sep 16, 2008 5:19 am Post subject: Re: Will the world economy collapse Tuesday?
RSFB wrote:
My guess? They haven't run out of tricks yet, as the second-to-last paragraph says. Let's give the roulette another spin and see what comes out...
Disagree. Its a question of time frame. The Clowns spent the entire weekend trying to figure out how to save Lehman, and they could not do it. In the aftermath of the resulting bankruptcy filing on Sunday, IMMEDIATELY all markets all over the world went into a tailspin, and the financial problems of AIG came to the fore.
Now lemme ask you, with all WEEKEND to figure out some bailout for Lehman they could not muster up, just HOW in the course of 24 hours could they figure out a bailout for AIG that would work? ANYTHING done has a downside, ANY solution is more irredeemable debt, and good grief the concept that the taxpayer could foot the bill for TRILLIONS in the derivatives market is absurd beyond belief, particularly when there are few taxpayers LEFT.
If somebody could pull a Rabbit out of their Hat on this one, I will shave my head. Cannot be done. AIG goes Belly Up, and the House of Cards comes Tumbling Down. HAS to happen now. Out of time, out of options.
King of Doom Calls here. Have not been wrong yet since joining the board. I give it to the end of the week, but I think AIG is going DOWN, and so is the whole monetary system.
Joined: May 02, 2005 Posts: 3542 Location: On the ball
Posted: Tue Sep 16, 2008 5:29 am Post subject: Re: Will the world economy collapse Tuesday?
ReverseEngineer wrote:
... King of Doom Calls here. Have not been wrong yet since joining the board. I give it to the end of the week, but I think AIG is going DOWN, and so is the whole monetary system.
please check your messages _________________ "It's still all about energy!"
Joined: Nov 27, 2004 Posts: 251 Location: The District
Posted: Tue Sep 16, 2008 6:14 am Post subject: Re: Will the world economy collapse Tuesday?
Is there the chance that the New York gaming association will allow AIG to tap into their derivitives for the remaining amount, e.g. 'borrow from family members/circle the wagons'? _________________ What fortune has made yours is not your own. -Seneca
Posted: Tue Sep 16, 2008 6:21 am Post subject: Re: Will the world economy collapse Tuesday?
They are accepting stock in exhange now. I wonder how that works - a company that's going BK still has assets. Can they issue stock, dilute the current shareholders, trade the new stock to the Treasury in exchage for real money, and use that as "reserves?"
It hurts my head to think about it
Duende wrote:
Is there the chance that the New York gaming association will allow AIG to tap into their derivitives for the remaining amount, e.g. 'borrow from family members/circle the wagons'?
Posted: Tue Sep 16, 2008 6:22 am Post subject: Re: Will the world economy collapse Tuesday?
Uh oh. You're in trouble now
MD wrote:
ReverseEngineer wrote:
... King of Doom Calls here. Have not been wrong yet since joining the board. I give it to the end of the week, but I think AIG is going DOWN, and so is the whole monetary system.
Posted: Tue Sep 16, 2008 6:23 am Post subject: Re: Will the world economy collapse Tuesday?
ReverseEngineer wrote:
RSFB wrote:
My guess? They haven't run out of tricks yet, as the second-to-last paragraph says. Let's give the roulette another spin and see what comes out...
Disagree. Its a question of time frame. The Clowns spent the entire weekend trying to figure out how to save Lehman, and they could not do it. In the aftermath of the resulting bankruptcy filing on Sunday, IMMEDIATELY all markets all over the world went into a tailspin, and the financial problems of AIG came to the fore.
Now lemme ask you, with all WEEKEND to figure out some bailout for Lehman they could not muster up, just HOW in the course of 24 hours could they figure out a bailout for AIG that would work? ANYTHING done has a downside, ANY solution is more irredeemable debt, and good grief the concept that the taxpayer could foot the bill for TRILLIONS in the derivatives market is absurd beyond belief, particularly when there are few taxpayers LEFT.
If somebody could pull a Rabbit out of their Hat on this one, I will shave my head. Cannot be done. AIG goes Belly Up, and the House of Cards comes Tumbling Down. HAS to happen now. Out of time, out of options.
King of Doom Calls here. Have not been wrong yet since joining the board. I give it to the end of the week, but I think AIG is going DOWN, and so is the whole monetary system.
Soooo, all the sheeples 401's slide into worthless paper? Thats alot of money
Posted: Tue Sep 16, 2008 6:28 am Post subject: Re: Will the world economy collapse Tuesday?
European markets are already down 1.5-3%...
ReverseEngineer: I believe they didn't rescue Lehman because they thought it wouldn't cause systemic risk (or maybe because rescuing it would make that risk even worse due to market perception). From my not-very-informed point of view It seems like they're buying as much time as possible, perhaps hoping for a miracle to happen in between. If they need to keep AIG afloat for some more time to keep the house of cards up, they will.
Joined: Sep 14, 2004 Posts: 6627 Location: Rural Virginia
Posted: Tue Sep 16, 2008 7:56 am Post subject: Re: Will the world economy collapse Tuesday?
AIG is down almost 70% this morning, and is close to becoming a penny stock. If the stock price doesn't recover, this will make saving the company much harder. _________________ "Actually, humans died out long ago."
---Abused, abandoned hunting dog
"Things have entered a stage where the only change that is possible is for things to get worse."
---Me and my brother
Posted: Tue Sep 16, 2008 7:59 am Post subject: Re: Will the world economy collapse Tuesday?
Heineken wrote:
AIG is down almost 70% this morning, and is close to becoming a penny stock. If the stock price doesn't recover, this will make saving the company much harder.
Yep with stocks in the hole its pretty hard to justify using them as collateral or any type of leverage. _________________ Tired of high gas prices? Then stop driving to work, duh..... Learn to Work from home
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My WAG of the Dow at 9200 friday may be high , very high.!!
Then stop driving to work, duh..... 
