2 months ago the blog raised 5 key questions about the $700bn US bailout. Yesterday’s news about additional government funding for insurance giant AIG confirms its concerns.
Originally, the US Treasury had insisted it would only support “healthy” firms. Now, this fiction has been abandoned. After AIG announced its 4th straight quarterly loss ($24.5bn), its original loan has had to be increased from $85bn to $112.5bn, whilst the Treasury invested another $40bn in preference shares.
Treasury said the increased support “was necessary to maintain the stability of our financial system”. But as Bloomberg reports, it means that loss-making AIG has effectively become a “zombie” company, along the lines of those created in Japan during its financial market collapse of the 1990’s. “The living dead keep on walking”, as one commentator described it.
The blog fears that this will just be the start of a trend, with one or more of the US auto companies likely to be given a similar “lifeline” before too long. Chemical company CFOs have yet one more thing to worry about.