HomeMy WebLinkAboutBUDGET & FINANCE AGENDA 11-03-08
Central Contra Costa Sanitary District
5019 Imhoff Place, Martinez, CA 94553-4392 (925) 228-9500 . wwwcentralsan,org
BUDGET AND FINANCE COMMITTEE
Chair McGill
Member Nejedly
Monday,November3,2008
3:00 p.m.
Executive Conference Room
5019 Imhoff Place
Martinez, California
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agenda. You may address the Committee on any items not listed on the agenda, and which are within their
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Imhoff Place, Martinez. Reports or information relating to agenda items distributed within 72 hours of the
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A
to, Recycled Paper
Budget and Finance Committee
November 3, 2008
Page 2
1. CALL MEETING TO ORDER
2. PUBLIC COMMENTS
3. OLD BUSINESS
*a. Payment History for Bulldog Gas & Power
*b. Cost Benefit Analysis of Verizon vs. Nextel
4. CLAIMS MANAGEMENT
*a. Review Outstanding Claims
5. REPORTS/ANNOUNCEMENTS
*a. Bond Sale Collusion Regarding Contra Costa County
*b. Update on AIG
c. Economic Update
6. REVIEW SEPTEMBER 2008 FINANCIAL STATEMENTS (Item 3.b. in Board
Binder)
7. REVIEW EXPENDITURES (Item 3.a. in Board Binder)
8. ADJOURNMENT
*
Attachment
Transaction Invoice Number Transaction Check Date - Check Accountin Accou Description 1 Account Number
Date - Calc Amount Calc Number g Period nling
9/27/2006 CCCSD0706 37,632.00 9/28/2006 163123 2007 3 LANDFILL GAS USAGE JULY 001-0420-730.05-03
12/22/2006 CCCSD1106 52,011.18 12/28/2006 164379 6 LANDFILL GAS USE NOV 001-0420-730.05-03
1/16/2007 CCCSD1206 76,042.95 2/1/2007 164730 7 LANDFILL GAS USE DEC 001-0420-730.05-03
2/19/2007 CCCSD0107 66,658.95 3/1/2007 165060 8 LANDFILL GAS USE JAN 001-0420-730.05-03
3/15/2007 CCCSD108 70,887.11 3/29/2007 165390 9 LANDFILL GAS USAGE FEB 001-0420-730.05-03
3/15/2007 CCCSD108 -1,691.13 3/29/2007 165390 9 LESS ADJ/MMBTU QUANTITY 001-0420-730.05-03
4/25/2007 CCCSD70 25,249.40 5/17/2007 166078 11 LANDFILL GAS USE MARCH 001-0420-730.05-03
5/23/2007 CCCSD71 34,003.20 6/28/2007 166634 12 LANDFILL GAS USE APRIL 001-0420-730.05-03
6/15/2007 CCCSD72 64,427.60 6/28/2007 166634 12 LANDFILL GAS USE MAY 001-0420-730.05-03
7/25/2007 CCCSD73 54,947.00 8/9/2007 167179 13 LANDFILL GAS USE JUNE 001-0420-730.05-03
8740
*
*
$480,168.26
3.~.
BULLDOG GAS & POWER, LLC.
Date: 10/15/2008
8/7/2007 CCCSD74 47,964.20 8/23/2007 167327 2008 2 LANDFILL GAS USE JULY 001-0420-730.05-03
9/11/2007 CCCSD75 56,552.40 9/27/2007 167840 3 LANDFILL GAS USE AUG 001-0420-730.05-03
9/11/2007 CCCSD75 -983.52 9/27/2007 167840 3 RATE ADJUSTMENT AUG 001-0420-730.05-03
9/11/2007 CCCSD75 -1,459.78 9/27/2007 167840 3 ADJUSTMENT JULY 001-0420-730.05-03
10/18/2007 CCCSD76 48,066.20 10/25/2007 168182 4 LANDFILL GAS USE SEPT 001-0420-730.05-03
11/28/2007 CCCSD77 51,842.00 12/6/2007 168682 5 LANDFILL GAS USE OCT 001-0420-730.05-03
12/20/2007 CCCSD78 48,198.80 1/10/2008 169138 6 LANDFILL GAS USAGE NOV 001-0420-730.05-03
1/21/2008 CCCSD79 47,044.20 1/31/2008 169400 7 LANDFILL GAS USE DEC 001-0420-730.05-03
2/4/2008 CCCSD80 59,169.80 2/28/2008 169711 8 LANDFILL GAS USE JAN 001-0420-730.05-03
3/17/2008 CCCSD81 55,706.00 4/3/2008 170250 9 LANDFILL GAS USE FEB 001-0420-730.05-03
4/1/2008 CCCSD81 59,459.60 4/24/2008 170488 10 LANDFILL GAS USE MARCH 001-0420-730.05-03
5/8/2008 CCCSD83 55,315.00 5/15/2008 170783 11 LANDFILL GAS USE APR 001-0420-730.05-03
6/6/2008 CCCSD84 58,355.60 6/19/2008 171204 12 LANDFILL GAS USE MAY 001-0420-730.05-03
7/22/2008 CCCSD85 52,624.00 7/31/2008 171876 13 LANDFILL GAS USE JUNE 001-0420-730.05-03
$637,854.50
CCCSD86
CCCSD87
59,013.40
56,064.80
$115,078.20
8/28/2008
9/25/2008
001-0420-730.05-03
001-0420-730.05-03
2 LANDFILL GAS USE JULY
3 LANDFILL GAS USE AUG
* No payment to Bulldog for service months August, September and October 2007. Landfill gas was unusable - water in the gas.
CCCSD proved that there was water with gas.
Page 1
!Randy Musgraves - Verizon vs. Nextel
Page 1 !
From:
To:
Date:
Subject:
Pam McMillan
Musgraves, Randy
10/6/2008 3:32:57 PM
Verizon vs. Nextel
Sin.
Randy,
At this time I do not recommend looking at Verizon any further for the following reasons:
1) Verizon is fairly new to the Push to Talk business and admits they are still working out some bugs.
2) Verizon's cost per user would be higher than Nextel.
3) Verizon does not offer an off network feature similar to Nextel's Direct Talk which acts as a walkie
talkie. Field crews use Direct Talk when they are in an area that they cannot get network service.
4) Verizon does not offer a hands free hard install kit for their Push to Talk phones.
5) Verizon only offers two options for rugged Push to Talk phones.
I would like to look at Verizon again a year or two down the road when they have had a chance to grow
and refine their Push to Talk business a bit more.
If you need further details, let me know. Otherwise, I hope this info is sufficient for you to respond to the
Board Member's inquiry about Verizon.
Pam McMillan
Buyer
CCCSD
5019 Imhoff Place
Martinez, CA 94553-4392
(925) 229-7314
Fax (925) 825-1437
pmcm illan@centralsan.org
cc:
McMillan, Pam
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Central Contra Costa Sanitary District
October 31 , 2008
TO: James Kelly
VIA: Randall Musgraves
FROM: Debbie Ratcliff
SUBJECT: Bond Sale Collusion regarding Contra Costa County
Contra Costa County has filed a law suit against Bank of America, JP Morgan, Merrill
Lynch, AIG Financial Products, and approximately twenty five other financial companies
alleging that these financial institutions deliberately decreased returns that public
agencies earned on municipal derivatives by allocating interest income to themselves
and rigging the bidding process instead of competing with each other, for Guaranteed
Investment Contracts and SWAPS. Also alleged is that public agencies were forced to
pay inflated fees and costs as well.
I discussed this law suit with our financial advisor from Stone and Youngberg, who was
not named in the law suit, to confirm that the District's bond issuances in 1994, 1998,
and 2002 were not affected by this alleged bid rigging. I was assured that Stone and
Youngberg did not participate in this practice. Further, the District has not invested any
bond proceeds in Guaranteed I nvestment Contracts or Swaps. All proceeds were
invested conservatively in Treasury bills and notes.
H:\Bond Sale Collusion regarding CCC.doc
. A Que.s~ion for A.LG. - Where Did the Cash Go? - NYTimes.com
Page 1 of 4
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October 30, 2008
A Question for A.I.G.: Where Did the Cash Go?
By MARY_WILLIAMS WALSH
The American International Group is rapidly running through $123 billion in emergency lending provided by
the Federal Reserve, raising questions about how a company claiming to be solvent in September could have
developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all
along, hidden by irregular accounting.
"You don't just suddenly lose $120 billion overnight," said Donn Vickrey of Gradient Analytics, an
independent securities research firm in Scottsdale, Ariz.
Mr. Vickrey says he believes AI.G. must have already accumulated tens of billions of dollars worth oflosses
by mid-September, when it came close to collapse and received an $85 billion emergency line of credit by the
Fed. That loan was later supplemented by a $38 billion lending facility.
But losses on that scale do not show up in the company's financial filings. Instead, AI.G. replenished its
capital by issuing $20 billion in stock and debt in May and reassured investors that it had an ample cushion.
It also said that it was making its accounting more precise.
Mr. Vickery and other analysts are examining the company's disclosures for clues that the cushion was
threadbare and that company officials knew they had major losses months before the bailout.
Tantalizing support for this argument comes from what appears to have been a behind-the-scenes clash at
the company over how to value some of its derivatives contracts. An accountant brought in by the company
because of an earlier scandal was pushed to the sidelines on this issue, and the company's outside auditor,
PricewaterhouseCoopers, warned of a material weakness months before the government bailout.
The internal auditor resigned and is now in seclusion, according to a former colleague. His account, from a
prepared text, was read by Representative H~I'Y-A. W..axm~n, Democrat of California and chairman of the
House Committee on Oversight and Government Reform, in a hearing this month.
These accounting questions are of interest not only because taxpayers are footing the bill at AI.G. but also
because the post-mortems may point to a fundamental flaw in the Fed bailout: the money is buoying an
insurer - and its trading partners - whose cash needs could easily exceed the existing government backstop
if the housing sector continues to deteriorate.
Edward M. Liddy, the insurance executive brought in by the government to restructure AI.G., has already
said that although he does not want to seek more money from the Fed, he may have to do so.
Continuing Risk
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-A QUt~5tion for A.I.G. - Where Did the Cash Go? - NYTimes.com
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Fear that the losses are bigger and that more surprises are in store is one of the factors beneath the turmoil in
the credit markets, market participants say.
"When investors don't have full and honest information, they tend to sell everything, both the good and bad
assets," said Janet Tavakoli, president of Tavakoli Structured Finance, a consulting firm in Chicago. "It's
really bad for the markets. Things don't heal until you take care of that."
A.I.G. has declined to provide a detailed account of how it has used the Fed's money. The company said it
could not provide more information ahead of its quarterly report, expected next week, the first under new
management. The Fed releases a weekly figure, most recently showing that $90 billion of the $123 billion
available has been drawn down.
AI.G. has outlined only broad categories: some is being used to shore up its securities-lending program,
some to make good on its guaranteed investment contracts, some to pay for day-to-day operations and - of
perhaps greatest interest to watchdogs - tens of billions of dollars to post collateral with other financial
institutions, as required by AI.G.'s many derivatives contracts.
No information has been supplied yet about who these counterparties are, how much collateral they have
received or what additional tripwires may require even more collateral if the housing market continues to
slide.
Ms. Tavakoli said she thought that instead of pouring in more and more money, the Fed should bring AI. G.
together with all its derivatives counterparties and put a moratorium on the collateral calls. "We did that with
ACA," she said, referring to ACA Capital Holdings, a bond insurance company that filed for bankruptcy in
2007.
Of the two big Fed loans, the smaller one, the $38 billion supplementary lending facility, was extended solely
to prevent further losses in the securities-lending business. So far, $18 billion has been drawn down for that
purpose.
For securities lending, an institution with a long time horizon makes extra money by lending out securities to
shorter-term borrowers. The borrowers are often hedge funds setting up short trades, betting a stock's price
will fall. They typically give AI.G. cash or cashlike instruments in return. Then, while AI.G. waits for the
borrowers to bring back the securities, it invests the money.
In the last few months, borrowers came back for their money, and AI.G. did not have enough to repay them
because of market losses on its investments. Through the secondary lending facility, the insurer is now
sending those investments to the Fed, and getting cash in turn to repay customers.
A spokesman for the insurer, Nicholas J. Ashooh, said A.I.G. did not anticipate having to use the entire $38
billion facility. At midyear, A.I.G. had a shortfall of $15.6 billion in that program, which it says has grown to
$18 billion. Another spokesman, Joe Norton, said the company was getting out ofthis business. Of the
government's original $85 billion line of credit, the company has drawn down about $72 billion. It must pay
8.5 percent interest on those funds.
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.A Qu?stion for A.I.G. - Where Did the Cash Go? - NYTimes.com
Page 3 of 4
An estimated $13 billion of the money was needed to make good on investment accounts that A.I.G. typically
offered to municipalities, called guaranteed investment contracts, or G.I.C.'s.
When a local government issues a construction bond, for example, it places the proceeds in a guaranteed
investment contract, from which it can draw the funds to pay contractors.
After the insurer's credit rating was downgraded in September, its G.I.C. customers had the right to pull out
their proceeds immediately. Regulators say that A.I.G. had to come up with $13 billion, more than half of its
total G.I.C. business. Rather than liquidate some investments at losses, it used that much of the Fed loan.
For $59 billion of the $72 billion A.I.G. has used, the company has provided no breakdown. A block of it has
been used for day-to-day operations, a broad category that raises eyebrows since the company has been
tarnished by reports of expensive trips and bonuses for executives.
The biggest portion of the Fed loan is apparently being used as collateral for A.I.G.'s derivatives contracts,
including credit-default swaps.
The swap contracts are of great interest because they are at the heart of the insurer's near collapse and even
A.I.G. does not know how much could be needed to support them. They are essentially a type of insurance
that protects investors against default of fixed-income securities. A.I.G. wrote this insurance on hundreds of
billions of dollars' worth of debt, much of it linked to mortgages.
Through last year, senior executives said that there was nothing to fear, that its swaps were rock solid. The
portfolio "is well structured" and is subjected to "monitoring, modeling and analysis," Martin J. Sullivan,
A.I.G.'s chief executive at the time, told securities analysts in the summer of 2007.
Gathering Storm
By fall, as the mortgage crisis began roiling financial institutions, internal and external auditors were
questioning how A.I.G. was measuring its swaps. They suggested the portfolio was incurring losses. It was as
if the company had insured beachfront property in a hurricane zone without charging high enough
premiums.
But A.I.G. executives, especially those in the swaps business, argued that any decline was theoretical because
the hurricane had not hit. The underlying mortgage-related securities were still paying, they said, and there
was no reason to think they would stop doing so.
A.I.G. had come under fire for accounting irregularities some years back and had brought in a former
accounting expert from the Securities and Exchange Commission. He began to focus on the company's
accounting for its credit-default swaps and collided with Joseph Cassano, the head of the company's financial
products division, according to a letter read by Mr. Waxman at the recent Congressional hearing.
When the expert tried to revise A.I.G.'s method for measuring its swaps, he said that Mr. Cassano told him, "I
have deliberately excluded you from the valuation because I was concerned that you would pollute the
process."
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A Q>(~stion for A.I.G. - Where Did the Cash Go? - NYTimes.com
Page 4 of 4
Mr. Cassano did not attend the hearing and was unavailable for comment. The company's independent
auditor, PricewaterhouseCoopers, was the next to raise an alarm. It briefed Mr. Sullivan late in November,
warning that it had found a "material weakness" because the unit that valued the swaps lacked sufficient
oversight.
About a week after the auditor's briefing, Mr. Sullivan and other executives said nothing about the warning in
a presentation to securities analysts, according to a transcript. They said that while disruptions in the
markets were making it difficult to value its swaps, the company had made a "best estimate" and concluded
that its swaps had lost about $1.6 billion in value by the end of November.
Still, PricewaterhouseCoopers appears to have pressed for more. In February, AI.G. said in a regulatory filing
that it needed to "clarify and expand" its disclosures about its credit-default swaps. They had declined not by
$1.6 billion, as previously reported, but by $5.9 billion at the end of November, AI.G. said.
PricewaterhouseCoopers subsequently signed off on the company's accounting while making reference to the
material weakness.
Investors shuddered over the revision, driving AI.G.'s stock down 12 percent. Mr. Vickrey, whose firm grades
companies on the credibility oftheir reported earnings, gave the company an F. Mr. Sullivan, his credibility
waning, was forced out months later.
The Losses Grow
Through spring and summer, the company said it was still gathering information about the swaps and tucked
references of widening losses into the footnotes of its financial statements: $11.4 billion at the end of 2007,
$20.6 billion at the end of March, $26 billion at the end of June. The company stressed that the losses were
theoretical: no cash had actually gone out the door.
"If these aren't cash losses, why are you having to put up collateral to the counterparties?" Mr. Vickrey asked
in a recent interview. The fact that the insurer had to post collateral suggests that the counterparties thought
AI.G.'s swaps losses were greater than disclosed, he said. By midyear, the insurer had been forced to post
collateral of $16.5 billion on the swaps.
Though the company has not disclosed how much collateral it has posted since then, its $447 billion portfolio
of credit-default swaps could require far more if the economy continues to weaken. More federal assistance
would then essentially flow through AI.G. to counterparties.
"We may be better off in the long run letting the losses be realized and letting the people who took the risk
bear the loss," said Bill Bergman, senior equity analyst at the market research company Morningstar.
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Cuomo Asks for Pay Data From Banks - NYTimes.com
Page 1 of2
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S;P<)HS;DRED BY
October 30, 2008
Cuomo Asks for Pay Data From Banks
By BEN WHITE and JONATHAN D. GIATER
Wall Street is coming under mounting political pressure to cut bonuses for top executives, traders and
bankers in what was already expected to be a down year for pay.
Under pressure from members of Congress to curtail compensation, banks now face a new threat from
AndrewM. Cuomo, the New York attorney general, who sent a letter on Wednesday to nine big financial
institutions receiving government aid.
Mr. Cuomo gave the companies a week to provide a "detailed accounting regarding your expected payments
to top management in the upcoming bonus season."
That could prove difficult for the banks, which typically do not complete bonus pools until later this month at
the earliest.
Mr. Cuomo's letter also warned that payments worth more than the services provided by executives might
violate New York law.
The letter follows one sent earlier this week to the same banks by Henry A. Waxman, the California Democrat
who is chairman of the House Committee on Oversight and Government Reform, urging them not to use any
government money for bonuses or other payments and asking for data on pay going back to 2006.
The demands from Mr. Cuomo and Mr. Waxman reflect an increased concern among lawmakers and
regulators about payments to executives, which have drawn strong public reactions since the government
approved a $700 billion bailout to stabilize the financial system. Other politicians have also held private
meetings with bank executives to warn them that big bonus figures this year would create enormous political
problems.
Any lawsuit based on the law cited by Mr. Cuomo would take some creative legal footwork, said Edward R.
Morrison, a law professor at Columbia University. The law permits creditors to try to recover or block
payments. "You have to find a way for the attorney general, for Cuomo, to shoehorn himself into the position
of a creditor," Professor Morrison said. "It's not implausible." The attorney general could act under the law,
Professor Morrison said, if New York state pension funds hold bonds issued by the nine companies. Mr.
Cuomo might also claim jurisdiction over any of the companies that might owe taxes to N ew York.
The attention raised questions on Wall Street, because bonus payments are already expected to be as much as
50 percent smaller than last year and perhaps even far smaller at banks that posted big losses. The New York
State comptroller estimated that Wall Street paid $33.2 billion in bonuses for 2007, compared with $33.9
billion the year before.
http://www.nytimes.com/2008/ 10/3 O/business/3 Opay .html ?ref=business&pagewanted=print 10/30/2008
Cuomo Asks for Pay Data From Banks - NYTimes.com
Page 2 of2
Even banks like Morgan Stanley and Goldman Sachs, which produced decent profits this year, are expected
to award significantly smaller bonuses.
Lloyd C. Blankfein, the chief executive of Goldman Sachs, received bonus and stock awards worth about
$68.5 million last year, while Goldman's co-presidents got just slightly less. Those numbers will not be
repeated. John J. Mack, Morgan Stanley's chief executive, declined to take a bonus last year.
Last week, Mr. Cuomo reached an agreement with the American International Group, the insurance
conglomerate that has received tens of billions of dollars in loans from the Federal Reserve, to freeze millions
in payments to former executives. His latest move appears to expand the inquiry into executive compensation
at companies participating in the government's financial bailout program.
"Taxpayers are, in many ways, now like shareholders of your company," Mr. Cuomo wrote, "and your firm
has a responsibility to them."
In his letter, Mr. Cuomo asked specifically for a description of bonus pools for this year, a description of how
money in those pools would be allocated, an explanation of how that allocation might have changed since
each company received money under the federal Troubled Asset Relief Program and a description of bonuses
paid to executives earning more than $250,000 in 2006 and 2007.
Mr. Cuomo's letter was sent to H~nkQtAm~Ii~~, B1:Lrtk_Qfl:-I~:wJ;':Q1:kM~11Q!1, Cij:ig!:Q:!Jp, Goldman Sachs,
JPMorgan Chase, Merrill Lynch, Morgan Stanley, State Street and Wells Fargo, all of which received capital
injections from the government as part of a wide-reaching program to stabilize the financial system.
Representatives of Morgan Stanley, JPMorgan Chase, Bank of America and Wells Fargo declined to comment
on the letter.
Citigroup said it would "cooperate with federal and state inquiries about our global expenditures for wages,
health insurance and other benefits, which we believe reflect compensation best practices. In addition, we
will of course adhere to applicable legal and regulatory requirements, including those in the federal
government investment program, such as restrictions on executive compensation."
In an e-mail message, a spokeswoman for State Street said the bank was "carefully evaluating" Mr. Cuomo's
request.
Other financial institutions did not return calls.
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New AIG CEO Discusses Company
Spending, Troubles
Government-appointed AIG CEO Edward Liddy discusses how the financial sector shake-up
led to insurer AIG's problems and what measures he intends to take in order to return to
successful business strategy.
..~ Dowtlloacl --s.t!eamlng .'Ideo
RAY SUAREZ: Of all the companies rescued by the government
and the taxpayer in recent weeks, none has received a bigger
guarantee than the insurance giant AIG. In the last month, the
Federal Reserve provided the company with more than $120
billion so that it can survive and deal with a dwindling supply of
cash.
There have been numerous questions about the way AIG ran its
business before and since the financial meltdown.
American International Group is not only the largest U.S.
insurance company; its businesses range from aircraft leasing to
retirement plan management.
HEIDI MOORE, The Wall Street Journal: Their balance sheet,
which means their assets, are about $1.04 trillion. They do
business with almost every other financial institution in the United
States, and they help insure the debt on those financial
institutions.
RAY SUAREZ: It was the housing crisis and AIG's staggering
mortgage-related losses that led to the government's enormous
rescue.
The company was also heavily vested in so-called credit default
swaps. The swaps are traded in an unregulated market valued at
more than $50 trillion.
They are, in effect, a form of insurance against bond defaults. But
as they became a more prominent financial instrument, bought
and sold many times over, AIG suddenly was unable to cover
billions in potential swap insurance when the market collapsed.
That point was driven home at a congressional hearing earlier this
month. Martin Sullivan was the president and CEO of AIG until
June.
REP. CAROLYN MALONEY (0), New York: There was no capital
reserve behind the swaps, right?
MARTIN SULLIVAN, Former CEO, American International Group:
Right, that's...
REP. CAROLYN MALONEY: So you were just gambling billions,
possibly trillions of dollars?
MARTIN SULLIVAN: Well, I wouldn't refer to it as gambling. I
would -- you know, these transactions were individually
underwritten very carefully. And maybe I can provide some more
background to you that may be helpful.
REP. CAROLYN MALONEY: If they're very -- if they were
carefully underwritten, how come no one wants to buy them?
RAY SUAREZ: At that same hearing, it was revealed the
company treated its staff lavishly to spa retreats in California and
a hunting trip in England costing over $500,000.
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REP. HENRY WAXMAN (0), California: The federal bailout
occurred on September 16th. Less than one week later, AIG held
a week-long retreat for company executives at the exclusive St.
remarks you touched on.
Those financial products exposed us to the collapse or the
seizure in the credit markets and we simply ran out of cash. That
running out of cash was recognized by the Federal Reserve, and
they threw us a lifeline, which we desperately needed, so that the
rest of the financial system wouldn't be contaminated.
RAY SUAREZ: Lehman Brothers failed. Washington Mutual was
seized by the FDIC and then its parts quickly sold. Bear Stearns
absorbed into another financial giant. Why was AIG not allowed to
either bust itself up and start selling off pieces or allowed to fall
and then let others pick up the profitable bits?
EDWARD LIDDY: Well, I think it was a wise decision on the part
of the Federal Reserve and Treasury to throw that lifeline to AIG
so that we could emerge from this crisis in an orderly way.
AIG touches an awful lot of other financial companies around the
world with the credit default swaps and some of the financial
products which you alluded to earlier.
What this does is it does enable us to bust ourselves up, as you
mentioned, and sell some of our extraordinary assets to pay back
that debt to the federal government and to the taxpayers.
RAY SUAREZ: But if you're going to start making those kinds of
sales, selling off those businesses that are not related to the core
business, as you mentioned, wouldn't they be on the market at a
depressed price, given where things stand now?
EDWARD LIDDY: Well, first, they're extraordinary assets; they
really are. We have some of the most enviable positions in life
insurance in Southeast Asia, in other parts of the globe. We're the
largest airplane owner and leaser in the world. So I think these
assets will have tremendous value.
Clearly, we'd prefer to be doing this asset sale a year ago or two
years ago than right now, but I think there will be plenty of
excellent demand for what are really very, very good assets.
Fed funding quickly used at AIG
RA Y SUAREZ: The price of all this to the American taxpayer is
often put at about $120 billion, but that's really two different pots
of money, isn't it?
EDWARD LIDDY: Yes, it is. There's really the $85 billion loan,
and then there's what's known as a liquidity facility. Because
there's no commercial paper around right now, it's a liquidity
facility where we give the Federal Reserve assets, they give us
cash.
RAY SUAREZ: And you've already used a lot of that money,
haven't you?
EDWARD LIDDY: Well, of the $85 billion, we were -- within the
first two or three weeks of taking that loan, we were at the $69
billion level. So anyone who thinks we didn't need the Federal
Reserve as a lifesaver simply doesn't understand the precarious
nature of where we were.
put in place over the last couple of weeks since our rescue, they
seem to be working, they seem to be lubricating the markets, and
I think we should be OK.
RA Y SUAREZ: Help us understand mechanically what this money
is being used for. You mentioned $69 billion that's already been
used out of the $85 billion initial injection. How does that help,
given the position that you were in when you went to the
government for help?
EDWARD LIDDY: Well, it's primarily in the financial products
area, where as the value of those assets go down -- maybe
they're residential mortgages or what have you -- as they go
down, we have to keep filling up the bathtub to make certain that
the assets that we've underwritten remain the same.
So if the value goes down, you have to make it up with
something. We make it up by writing a check. So we've had to
write more and more checks to keep the bathtub full, and that's
primarily what's cost us the $69 billion.
Fed now has large ownership stake
RAY SUAREZ: So now it's said that the federal government owns
roughly an 80 percent stake in your company.
EDWARD LIDDY: Yes.
RAY SUAREZ: What's the nature of the relationship? Is there a
federal representative on your board, in your highest councils?
EDWARD LIDDY: You know, there's not a federal representative
nn thA hn::Jrrl hi It I'll tAli vnll wh::Jt WA rln Anv timA ~nmAnnA
people looking at our cash flows. We're interacting with the
Federal Reserve in a very integrated way on a daily basis, and it's
working quite well.
RAY SUAREZ: Well, if Carl Icahn buys a position in a company, if
Kirk Kerkorian buys a position in a company, they look for some
say-so in that company, ditto Warren Buffett. How come when
Uncle Sam buys an 80 percent stake in a massive company, he
doesn't get a similar sort of say-so at the board level?
EDWARD LIDDY: Well, they will. The federal government is going
to put in -- the Federal Reserve is going to put in, not on the
board, but -- they can't own equities, per se, so they have to put
them in a trust.
There will be trustees who oversee the performance of AIG, with
respect to those -- the loan that they've put in. So the Federal
Reserve will be very much involved in everything that we do at
AIG.
RAY SUAREZ: Is the credit default swap business over? Is some
new model for insuring debt going to emerge from this crisis?
EDWARD LIDDY: Well, it's certainly over as far as we are
concerned. We are not in the credit default swap business any
longer. And what's known as our financial products division, that
division has been shut down.
Our core competency is insurance. It's regulated insurance. We're
really good at it. Those businesses are very strong today. We're
going to make sure that they stay strong. And we're going to
revert back to the things that we know very, very well.
RAY SUAREZ: Will there be insurance for those kinds of
instruments? I mean, does the market still need that kind of
product?
EDWARD LIDDY: I think the marketplace does. My instincts are it
will be regulated in the future, where it was not regulated in the
past. And I think the design of the products will be shifted in a way
that you don't have to keep, as I said before, posting the
collateral, which is what's brought us to our knees.
Liddy looking to cut spending
RAY SUAREZ: The New York attorney general, Andrew Cuomo,
said something today. He said, once a company accepts tax
dollars, there are different rules, and the taxpayers didn't get to
invest voluntarily.
Do you have to behave yourself differently when it comes to
things like the spa trips, and the hotel meetings, and that sort of
thing?
EDWARD LIDDY: Oh, Ray, we sure do. You know, with respect
to those things, we're embarrassed by it. And I apologize to the
American taxpayers for it.
You have to understand, AIG is a huge place. It's over $100
billion in revenue. We do business in something like 130
countries. And those events occurred within a couple of days of
us taking the federal bailout.
The analogy of the battleship comes to mind. It just takes a while
to slow things down or to get it turned. But we have to behave in a
much different way, which is why we have been canceling any
type events like that going forward.
We are tightening our belt. Just as the American consumer, the
American taxpayer is tightening their belt, we are doing the same
thing. But we're not stopping at one notch; we're going three and
four and five notches.
RA Y SUAREZ: Edward Liddy of AIG, thanks for talking to us, sir.
EDWARD LIDDY: Thank you.
~merica}1 International Group, Inc. I Newsroom
Page 1 of 1
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AIG NAMES PAULA ROSPUT REYNOLDS VICE CHAIRMAN AND CHIEF RESTRUCTURING OFFICER
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Richard H. Booth Named Vice Chairman, Transition Planning and Chief Administrative Officer
NEW YORKnAmerlcan International Group, Inc. (AIG) has named Paula Rosput Reynolds, former Chairman, President and Chief
Executive Officer of Safeco Corporation, as Vice Chairman and Chief Restructuring Officer. In this new position, Ms. Reynolds will
oversee AIG's divestiture of assets and will serve as chief liaison with the Federal Reserve Bank of New York. She reports to AIG
Chairman and Chief Executive Officer Edward M. Liddy.
Richard H. Booth, previously AIG Senior Vice President and Chief Administrative Officer, has been named Vice Chairman,
Transition Planning and Chief Administrative Officer. Mr. Booth will be responsible for restructuring AIG's corporate center,
overseeing the separation of companies being sold by AIG and executing AIG's operational transition to its new organizational
structure. Mr. Booth will continue with his current responsibilities Including AIG's global operations and systems, corporate
administration, corporate research and development, and a variety of special projects. He will also continue to serve as Chairman
of HSB Group, Inc. (HSB) until It is sold. Mr. Booth also reports to Mr. Liddy.
Mr. Liddy said that Ms. Reynolds and Mr. Booth are both well prepared to play key roles In turning around AIG.
"Paula brings to AIG deep experience, not only as an Insurance Industry leader, but also as someone who has successfully
realigned organizations to meet new challenges, n Mr. Liddy said. "She has earned a reputation for working collaboratively with
government and regulatory officials to achieve mutual goals."
Mr. Liddy also recognized Mr. Booth's successful career in the insurance Industry - notably with HSB, the Travelers Corp. and the
Phoenix Companies - and his particular strengths In managing complex organizations. "In his brief tenure as AIG's Chief
Administrative Officer, Dick has made tremendous progress In improving efficiency and reducing costs," Mr. Liddy said.
"Both of these executives will serve us well as we restore AIG as a competitive enterprise that contributes to the economy and
returns value to taxpayers and shareholders."
MS. Reynolds was named Safeco President and Chief Executive Officer In January 2006 and Chairman In May 2008. Prior to that,
she was Chairman, President and CEO of AGL Resources, an Atlanta-based energy holding company. Before joining AGL
Resources, Ms. Reynolds spent 20 years In the energy business In various executive positions. She has served on a number of
public boards, including Andarko Petroleum and Delta Airlines. She graduated with highest honors In economics from Wellesley
College.
Richard Booth was named AIG Senior Vice President and Chief Administrative Officer In June 2008 in addition to his
responsibilities as Chairman of HSB. Mr. Booth served as President and CEO of HSB from 2000 through 2007. Prior to joining HSB,
he spent 30 years In various Insurance Industry positions, Including President, Chief Operating Officer and Director of The
Travelers Corporation, and Executive Vice President and a Director of the Phoenix Companies. Mr. Booth Is a CPA, Chartered Life
Underwriter and Chartered Financial Consultant. He received his bachelor's and master's degrees from the University of Hartford's
Barney School of Business.
American International Group, Inc. (AIG), a world leader In Insurance and financial services, Is the leading international insurance
organization with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, Institutional and
individual customers through the most extensive worldwide property-casualty and life insurance networks of any insurer. In
addition, AIG companies are leading providers of retirement services, financial services and asset management around the world.
AIG's common stock is listed on the New York Stock Exchange, as well as the stock exchanges In Ireland and Tokyo.
Source: American International Group, Inc.
http://ir.aigcorporate.comlphoenix.zhtml?c=76115&p=irol-newsArtic1e&ID= 1216730&hi...
10/24/2008
AI.G. May Need Even More Money, Its Chief Says - Mergers, Acquisitions, Venture Ca...
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I A.I.G. May Need Even More Money, Its Chief Says
I OCTOBER 23, 2008, 6:43 PM
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Legal, Revolving Door, Wall Slreet Bailout
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Updated at 6:43 p.m.
II American International Group may need even more money than the
~. $122.8 billion that the federal government is loaning the giant insurance
. . company to avoid collapse, according to its chairman and chief executive,
Edward M. Liddy.
VENTURE
CAPITAL
Mr. Liddy said A.I.G.'s cash needs were tied to the fortunes of the capital markets. "To the
extent they continue to go down and we have to keep posting collateral, as it's called, the
vernacular in the industry, it's possible it may not be enough," he said. LATEST DEALBOOK HEADLINES
A.I.G. has already drawn down $90.3 billion from the two credit lines that the
government offered it, up from $82.9 billion a week ago, Bloomberg News reports. The
latest amount exceeds the government's initial $85 billion credit line.
"I think it was a wise decision on the part of the Federal Reserve and Treasury to throw
that lifeline to A.I.G. so that we could emerge from this crisis in an orderly way," Mr.
Liddy told "The NewsHour With Jim Lehrer" on PBS Wednesday night.
He added, "What this does is it does enable us to bnst ourselves up, as you mentioned,
and sell some of our extraordinary assets to pay back that debt to the federal govemment
and to the taxpayers."
On Thursday, A.I.G. named two executives to lead its restructuring efforts and the sale of
assets.
It said Paula Rosput Reynolds, the former chief executive of Safeco, would become a vice
chairman and chief restmcturing officer. Ms. Reynolds will oversee the assets sales and
act as the company's chief liaison with the Federal Reserve Bank of New York.
ALG. also said Richard H. Booth, a senior vice president, would become vice chairman
for transition planning as well as chief administrative officer. Mr. Booth will be
responsible for restructuring AI.G.'s corporate center, overseeing the separation of
! companies being sold by ALG.
; In his interview with PBS, Mr. Liddy said he thought that A.LG.'s prospects were
improving, especially with the Federal Reserve's efforts to calm the financial markets. "To
the extent some of the moves that the Federal Reserve has put in place over the last
couple of weeks since our rescue, they seem to be working, they seem to be lubricating
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10/24/2008
A.I.G. May Need Even More Money, Its Chief Says - Mergers, Acquisitions, Venture Ca...
Page 2 of2
the markets, and I think we should be O.K.," he said.
QQJ.Q_Inu!~~rj.Qt.QL~~Tb_~_N_~_~tlQ\!LW:itlLJimJ,,!)hr!;r'::"'Ql1J)_~~2>.
(':rQ...tQ..PI~~$..R~l~!!Il.~.Jr.o.mA,l..G.,.'!
Go to Article from Bloomberg News ))
3 comments so far...
1. October
23rd,
2008
5:02pm
2. October
23rd,
2008
5:46 pm
3. October
23rd,
2008
7:04pm
Let AIG bleed. Talk about socialism at its worst! You rich arrogant
bankers need to get it together in order to establish your creditability with
the American populace. I've since withdrawn all my money from banks
and am solely working off of cash.
Create a Great Day!
- Posted by No Sympathy
Get the money back that was drained out of AIG by its management,
friends, advisors, affiliated counterparties and all the others who profited
from this mess, then and only then should more public funding be even
considered.
There should be at least $200-250 billion that is out there as a result of
"special arrangements" and incentives during the past 5-6 years. Plenty to
cover the losses and pay the Treasury/taxpayer back with interest and
surcharges.
- Posted by Hank
Of course they need more money, they spent half a million on luxury
items - hotel rooms, spa services, booze and this was AFrER the bailout !!
Damn criminals - they should be thrown in prison.
- Posted by Tre Gibbs
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Debbie Ratcliff - Re: Fwd: Verizon Y5. Nextel
Page 1 of 1
From:
To:
Date:
Subject:
Randy Musgraves
Debbie Ratcliff
10/15/20085:13 PM
Re: Fwd: VerizonVSA~exte!-----~
-..-.................. .................-r-=.................................--.......-...................................................... ..:::::::
Please place on the next Budget & Finance Committee agenda.
>>> Jim Kelly 10/15/2008 11:02 AM>>>
Finance committee
-'.--.---
James M. Kelly
General Manager
Central Contra Costa Sanitary District
5019 Imhoff Place
Martinez, CA 94553
Phone: 925-229-7386
Fax: 925-676-7211
>>> Randy Musgraves 10/6/2008 3:35:47 PM >>>
Jim, I asked Pam to perform a cost benefit analysis of Verizon vs. Nextel. Attached is a summary of her work and findings.
How would you like to handle the report back to Jim Nejedly?
file:1 Ie: \Documents and Settings\dratc1iff\Local Settings\ T emp\GW} 0000 l.HTM
10/16/2008
A.I.G. Borrows Another .9 Billion From the Fed - Mergers, Acquisitions, Venture Capital... Page 1 of 3
i
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IlhtNe\ttlorkl'uutll
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AJ.G. Borrows Another $20.9 Billion From the Fed
OCTOBER 30, 2008, 5:22 PM
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TOPICS Legal
INDUSTRIES Financial Services
. American International Group has found another place to borrow
.. billions of dollars from the government: the Federal Reserve's commercial
. paper program.
The distressed insurance company disclosed Thursday afternoon that it was borrowing
up to $20.9 billion from the Fed's program, under which the central bank is buying
companies' short-term debt in an effort to unfreeze the market for commercial paper.
AJ.G. already has access to two government credit lines totaling $122.8 billion in order to
avoid collapse, and the company's borrowing from the commercial paper program
enabled it to reduce its debt under those lines.
In a filing with the Securities and Exchauge Commission, A.LG. said four of its affiliates
had exchanged commercial paper for cash from the Federal Reserve Bank of New York. It
said in the filing that it would use the proceeds to refinance its outstanding commercial
paper, as well as pay down its initial credit line of $85 billion.
The Fed said A.LG. reduced its debt under the two existing credit lines to $83.5 billion,
from $90.3 billion a week ago, by using cash from the commercial paper program,
Bloomberg News reports.
With the latest loans of up to $20.9 billion from the Fed, the insurer's borrowing now
totals as much as $104-4 billion.
An ALG. spokesman, Nicholas Ashooh, told Bloomberg that the terms ofthe commercial
paper program were better than those for the original $85 billion credit line, which has a
higher interest rate.
"They're paying off a Fed loan with another kind of government subsidy - it's like using
one credit card to payoff another credit card," Robert Haines, an analyst at the research
firm CreditSights, told Bloomberg, "If they make progress paying off debts over time, I
don't think it'll be viewed as necessarily a bad thing."
Al.G. is rapidly running through the $122.8 billion made available by the Fed. Last week,
Al.G.'s chief executive, Edward M. Liddy, said the company might need to borrow even
more money.
This enormous need for cash has raised qnestions about how a company claiming to be
solvent in September could have developed such a big hole by October. Some analysts say
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http://dealbook.blogs.nytimes.com/2008/ 10/3 O/aig-borrows-another- 209- billion- from-the...
10/31/2008
A.I.G. Borrows Another.9 Billion From the Fed - Mergers, Acquisitions, Venture Capital... Page 20f3
that at least palt of the shortfall must have been there all along, hidden by irregular
accouuting.
GQ...to.S,E,C,..FiJingJrom.A,I,G,..>>.
Go to AIticle from Bloomberg News >>
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Go to Article from The New York Times >>
7 comments so far...
1. October
30th,
2008
6:27 pm
2. October
30th,
2008
7:11pm
3. October
30th,
2008
7:34pm
4. October
30th,
2008
7:56 pm
5. October
31st,
2008
6:38 am
6. October
31st,
2008
10:26 am
7. October
31st,
2008
11:48 am
AlG apetite for bailout money can be described only by GLUTTONY
These guys are trying toleave us homeless, peniless, jobless and hopeless.
Have a nice stay in St. Regis California
- Posted by hadarmen
AlG stock was the big gainer on Tuesday. The stock went from over a
dollar to over 2 dollars. Not exactly a good sign for the soundness of the
stock market.
- Posted by bob sallamack
Lets see...Federal dollars pay for banks to buy other banks.
AlG needs to "borrow" more hundreds of billions.
The Bush administration engineered this and Obama is the communist?
The Republican version of redistributing the wealth.
- Posted by JC MacKinnon
Where is my bail out? Maybe it got sent out in the form fraudulent
rebates?
Nice work all!
- Posted by Money for nothin~
How many billions will AIG need if the auto manufacturers go belly up if
iii' ole Lehmans does this to them? You see Mr President it's like this .....
- Posted by Alan Smith
Time for personal drastic action. This bailout and obscene bonus
payments to the Wall Street types will continue and fiscally responsible
americans will be hosed by low low rates of interest on their saving to
subsides them.
Time to remove all my money from the banks and investment firms and
either buy gold or stuff it my matress.
Saver are being severly punished for being purdent and those that weren't
are being rewarded.
The world is truly upside down.
- Posted by Tom Gemelli
AlG should be rewarded for making such good use of government
programs.
Can we give all AIG executives an extra bonus this Christmas?
- Posted by Dave
Name
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10/31/2008
New Credit Line Highlights A.I.G.s Swift Decline - Mergers, Acquisitions, Venture Capit... Page 1 of2
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New Credit Line Highlights A.I.G.'s Swift Decline
OCTOBER 31, 2008, 6:50AM
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TOPICS Legal
INDUSTRIES Financial Services
. The American International Group's 1!!1!19J!11\;!:1me.n! Thursday that it
could now borrow up to $20.9 billion under the Federal Reserve's new
. . . .. '. . commercial paper program, raising its maximum available credit from the
Fed to $144 billion under three different programs, underscores the
company's bewilderingly rapid decline, The New York Times's Mary Williams Walsh
writes.
When it suddenly faced a cash crisis in mid-September, the original estimate of the
amount it needed was just $20 billion. A few days later, the Fed stepped forward with its
$85 billion credit line. And now, the stunning size ofthat original bailout has grown by
almost 70 percent.
A.I.G.'s cash needs could grow even further. Much of the cash it needs is being used to
meet collateral calls from its derivatives counterparties, and the precise collateral triggers
and amounts are not public information. In general, the derivative contracts cost A.I.G.
more as the real estate markets decline. The company's financial products division did a
lot of business in that type of derivative, called credit-default swaps.
By the same token, if real estate prices rebounded, A.I.G. has said, it could call some of
the collateral back.
In addition to a $85 billion credit line from the Fed, which carries a much higher interest
rate, and the $20.9 billion commercial paper program, A.I.G. has a $38 billion facility
from the Fed that provides liquidity for the company's securities-lending business. A.I.G.
said on Thursday that it was currently using about $18 billion of this facility.
By tapping the newest source of money from the Fed, A.I.G. was able to reduce the
amount it had borrowed under the original $85 billion line of credit, said a spokesman,
.Joe Norton. He said the company had currently drawn down $65.5 billion from that loan,
compared with about $72 billion a week ago.
The Fed extended the original $85 billion line of credit at a steep price. On the part of the
loan that A.I.G. draws down, it must pay an interest rate of 8.5 percentage points over the
three-month Libor, an index rate for inter-bank lending. On the unused portion, A.I.G.
must pay a fixed rate of 8.5 percent. In addition, the Fed added a 2 percent commitment
fee to the total balance when it started the loan.
Mr. Norton said A.I.G. had incurred interest and fees of about $331 million so far. The
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New Credit Line Highlights A.I.G.s Swift Decline - Mergers, Acquisitions, Venture Capit... Page 2 of2
Fed also took a majority stake in A.l.G. in exchange for the bailout, angering
shareholders, who were almost completely wiped out. Debt
The commercial paper program is much cheaper. The interest rate changes every day, but DEALBOOK NEWS BY INDUSTRY
in the foUl' days since the Fed started the program, the highest rate was just 3.89 percent.
A.I.G. is not the only participant. The Fed offered the program to all issuers of
commereial paper in the nation to restart the stalled credit markets.
Mr. Norton said A.l.G. would use the newest source of funds for working capital, to
refinance existing commercial paper, and to make voluntary prepayments on the $85
billion loan. He said that such voluntary prepayments would not reduce the total amount
of the credit line available. If, by contrast, A.I. G. sold business assets and used the
proceeds to pay down the loan, Mr. Norton said, the $85 billion balance would be
reduced accordingly.
Go to Article from The New York Times ))
1 comments so far...
1. October
31st,
2008
10:37 am
I feel the time may be right to let AIG go the way of Bear Stearns and
Lehman Brothers. Either it finds a buyer or goes under. The management
have only themselves to blame.
- Posted by London
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October 31, 2008
Fed Adds $21 Billion to Loans for A.I.G.
By l\iAR.YWILLIAMS WALSH
The American International Group said Thursday that it had been given access to the Federal Reserve's new
commercial paper program, allowing it to reduce its reliance on a costlier emergency loan from the Fed.
The company said it would be able to borrow up to $20.9 billion under the new program, raising its
maximum available credit from the Fed to $144 billion under three different programs. The credit includes
an earlier emergency loan of $85 billion from the Fed that carries a much higher interest rate.
A.I.G.'s big borrowings underscore the company's bewilderingly rapid decline. When it suddenly faced a cash
crisis in mid-September, the original estimate of the amount it needed was just $20 billion. A few days later,
the Fed stepped forward with its $85 billion credit line. And now, the stunning size of that original bailout
has grown by almost 70 percent.
A.I.G.'s cash needs could grow even further. Much ofthe cash it needs is being used to meet collateral calls
from its derivatives counterparties, and the precise collateral triggers and amounts are not public
information. In general, the derivative contracts cost A.I.G. more as the real estate markets decline. The
company's financial products division did a lot of business in that type of derivative, called credit-default
swaps.
By the same token, if real estate prices rebounded, A.I.G. has said, it could call some of the collateral back.
In addition to the $85 billion credit line and the $20.9 billion commercial paper program, A.I.G. has a $38
billion facility from the Fed that provides liquidity for the company's securities-lending business. A.I.G. said
on Thursday that it was currently using about $18 billion of this facility.
By tapping the newest source of money from the Fed, A.I.G. was able to reduce the amount it had borrowed
under the original $85 billion line of credit, said a spokesman, Joe Norton. He said the company had
currently drawn down $65.5 billion from that loan, compared with about $72 billion a week ago.
The Fed extended the original $85 billion line of credit at a steep price. On the part of the loan that A.I.G.
draws down, it must pay an interest rate of 8.5 percentage points over the three-month Libor, an index rate
for inter-bank lending. On the unused portion, A.I.G. must pay a fixed rate of 8.5 percent. In addition, the
Fed added a 2 percent commitment fee to the total balance when it started the loan.
Mr. Norton said A.I.G. had incurred interest and fees of about $331 million so far. The Fed also took a
majority stake in A.I.G. in exchange for the bailout, angering shareholders, who were almost completely
wiped out.
http://www.nytimes.com/2008/1 0/31 /business/31 aig.html? _r= 1 &sq=aig&st=cse&oref=sl... 10/31/2008
.t'ea Aaas :tiLl tsllllOn to Loans tor A.l.G. - NYTimc~'.com
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The commercial paper program is much cheaper. The interest rate changes every day, but in the four days
since the Fed started the program, the highest rate was just 3.89 percent.
A.I.G. is not the only participant. The Fed offered the program to all issuers of commercial paper in the
nation to restart the stalled credit markets.
Mr. Norton said A.I.G. would use the newest source of funds for working capital, to refinance existing
commercial paper, and to make voluntary prepayments on the $85 billion loan. He said that such voluntary
prepayments would not reduce the total amount of the credit line available. If, by contrast, A.I.G. sold
business assets and used the proceeds to pay down the loan, Mr. Norton said, the $85 billion balance would
be reduced accordingly.
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