The market skidded into a ditch this morning, with the Dow Jones Industrial Average opening below 7,000 following a global selloff overnight in Japan and Europe. Mid-morning it continued to slide, down around 3 percent, or 220 points, to 6858. It is now off nearly 50 percent from a high of around 13,000 in mid-May of last year.
Meanwhile, the government spigot is still gushing, with AIG getting its fourth bailout deal Monday and Citi, it’s third. Under the terms of the new agreement with AIG, the government has relaxed the terms of its loans to the troubled insurer, exposing American taxpayers to more risk, but presumably shoring up AIG’s value longer term, according to a story in The Wall Street Journal. And this for a company that lost $61.7 billion in the final quarter of 2008, equivalent to $670 million a day, according to the calculations of Clusterstock.
This fourth deal allows AIG to take an additional $30 billion in fresh cash from the government’s Troubled Asset Relief Plan (TARP) program, but its prior $60 billion credit line with the Federal Reserve is being slashed to between $20 billion and $25 billion. Some are predicting that a plan to break up the company and sell it off in pieces will be released later today.
On Friday, meanwhile, the government inked a new deal with Citigroup—it’s third—that will give the government a 36 percent stake in the bank by converting up to $25 billion in preferred shares into common stock. According to The Wall Street Journal, under the new deal, the bank wasn’t required to “make more loans, rein in foreclosures or curb executive pay beyond previously agreed or required levels.”
This week’s New York magazine profiles Citi CEO Vikram Pandit, and details the rise of the brainy financial engineer to the top of the firm from his roots at Morgan Stanley.
In other news, former Treasury Secretary and Secretary of State Jim Baker writes in the Financial Times that the U.S. is repeating Japan’s mistake of the 1990s (via Clusterstock).
“Rather than follow America’s tough recommendation – and close or recapitalise these banks – Japan took an easier approach,” Baker writes, and Clusterstock quotes. “It kept banks marginally functional through explicit or implicit guarantees and piecemeal government bail-outs. The resulting “zombie banks” – neither alive nor dead – could not support economic growth.”