Fed releases 2008 meeting transcripts

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The world is pawing through the trove of transcripts from the crisis. Here`s a nugget I picked up from Bill Dudley at the Sept 16 meeting (pdf of transcript):

Of course, we also have the issue of AIG. The AIG problem is at least starting as a liquidity crisis. The problem with AIG is that the parent company doesn’t have a lot of liquidity resources and doesn’t have easy ability to funnel liquidity up from their  subsidiaries because most of the subsidiaries are regulated entities. So AIG is running into two problems: One, they are unable to roll their commercial paper and, two, as their ratings are downgraded—they were downgraded by Moody’s yesterday, I think from AA minus to A minus, but don’t quote me on that—they have to post a lot more collateral against their derivatives exposures and also with respect to their GIC (guaranteed investment contract) business. So AIG is in a situation in which the parent is basically  going to run out of money—today, tomorrow, Thursday, or very, very soon. Now we say it’s a liquidity thing, but a lot of times when people look closer at the books they find out that the liquidity crisis may also be a solvency issue. I think it is still a little unclear  whether AIG’s problems are confined just to liquidity. It also may be an issue of how much this company is really worth.

When you hear one of the world`s biggest insurers is about to go bankrupt, you better pour yourself another coffee.

Author: Adam Button

Adam Button is the managing editor of ForexLive™. He was previously the chief currency strategist at XForex and has also worked with Intermarket Strategy. Adam believes there's an edge in knowing every tidbit of news. He was formerly the head of the markets team at the Canadian Economic Press and is a graduate of Ryerson University. Adam lives in Montreal, follow him on Twitter: @FX_Button.

3 Comments

  1. Not sure coffee would be a strong enough tonic is this case Adam ;-)

  2. They never attended the Crisis 101 class did they?

  3. Reminds me of Neil Gaiman and Terry Pratchett in “Good Omens”: It may help to understand human affairs to be clear that most of the great triumphs and tragedies of history are caused, not by people being fundamentally good or fundamentally bad, but by people being fundamentally people.

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