WASHINGTON // In a bid to save financial markets and its economy from further turmoil, the US government agreed yesterday to provide an US$85bn (Dh312.34) emergency loan to rescue the huge insurer AIG.
The Federal Reserve said in a statement it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.
It could also "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said.
In return for the loan, the government will receive a 79.9 per cent equity stake in AIG.
"The president supports the agreement announced this evening by the Federal Reserve," said White House spokesman Tony Fratto.
"These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy."
The US treasury secretary, Henry Paulson, said the administration was working closely with the Fed, the Securities and Exchange Commission and other government regulators to "enhance the stability and orderliness of our financial markets and minimise the disruption to our economy."
"I support the steps taken by the Federal Reserve tonight to assist AIG in continuing to meet its obligations, mitigate broader disruptions and at the same time protect taxpayers," Mr Paulson said in a statement.
Earlier, the Fed chairman, Ben Bernanke, and Mr Paulson met with the Senate Banking Committe chairman, Christopher Dodd, the Senate Majority leader Harry Reid, and the House Republican leader John Boehner to brief them on the government's options.
"At the administration's request, I met this evening with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. They expressed the administration's views on the deepening economic turmoil and shared with us their latest proposals regarding AIG," Mr Reid said.
"The Treasury and the Fed have promised to provide more details in the near future, which I believe must address the broader, underlying structural issues in the financial markets."
Yesterday, shares of the insurance company swung violently as rumours of potential deals involving the government or private parties emerged and were dashed. By late yesterday, its shares had closed down 20 per cent - and another 45 per cent after hours. Still, no deal emerged.
The problems at AIG stemmed from its insurance of mortgage-backed securities and other risky debt against default.
If AIG could not make good on its promise to pay back soured debt, investors feared the consequences would pose a greater threat to the US financial system than this week's collapse of the investment bank Lehman Brothers.
The worries were triggered after Moody's Investor Service and Standard and Poor's lowered AIG's credit ratings, forcing the insurer to seek more money for collateral against its insurance contracts.
Without that money, it would have defaulted on its obligations and the buyers of its insurance - such as banks and other financial companies - would have found themselves without protection against losses on the debt they hold.
"It might not just bring down other financial institutions in the US It could bring down overseas financial institutions," said Timothy Canova, a professor of international economic law at Chapman University School of Law.
"If Lehman Brother's failure could help trigger AIG's going down, who knows who AIG's failure could trigger next."
New York-based AIG operates insurance and financial services businesses ranging from property, casualty, auto and life insurance to annuity and investment services. Those traditional insurance operations are considered healthy and the National Association of Insurance Commissioners said "they are solvent and have the capability to pay claims."
* AP
The bio
Favourite book: The Alchemist by Paulo Coelho
Favourite travel destination: Maldives and south of France
Favourite pastime: Family and friends, meditation, discovering new cuisines
Favourite Movie: Joker (2019). I didn’t like it while I was watching it but then afterwards I loved it. I loved the psychology behind it.
Favourite Author: My father for sure
Favourite Artist: Damien Hurst
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Pakistan T20 series squad
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Other value-investing managers have also struggled, as a decade of historically low interest rates and the rise of passive investing and quant trading pushed growth stocks past their inexpensive brethren. Three Bays Capital and SPO Partners & Co., which sought to make wagers on undervalued stocks, closed in 2018. Mr Einhorn has repeatedly expressed his frustration with the poor performance this year, while remaining steadfast in his commitment to value investing.
Greenlight, which posted gains only in May and October, underperformed both the broader market and its peers in 2018. The S&P 500 Index dropped 4.4 per cent, including dividends, while the HFRX Global Hedge Fund Index, an early indicator of industry performance, fell 7 per cent through December. 28.
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Company name: Namara
Started: June 2022
Founder: Mohammed Alnamara
Based: Dubai
Sector: Microfinance
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How to join and use Abu Dhabi’s public libraries
• There are six libraries in Abu Dhabi emirate run by the Department of Culture and Tourism, including one in Al Ain and Al Dhafra.
• Libraries are free to visit and visitors can consult books, use online resources and study there. Most are open from 8am to 8pm on weekdays, closed on Fridays and have variable hours on Saturdays, except for Qasr Al Watan which is open from 10am to 8pm every day.
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5.30pm: Handicap (PA) Dh 90,000 1,400m
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Education: Bachelors in Political Science at the University of Minnesota
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Main camera video: 4K @ 30/60fps, 1080p @ 30/60fps; live HDR, OIS
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Price (UAE): Dh2,499 (12GB/256GB) / Dh2,799 (12GB/512GB)