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10 November 2008

Government Bailout Widens

Today news of the AIG bailout re-negotiation was announced. AIG will now be getting $150 billion dollars from the federal government. The plan includes a capital investment of $40 billion which the government will receive preferred stock and a 10% dividend. Additionally, AIG only has to pay back $60 billion. That's a heck of a deal there, maybe more firms should seek government bailout funding. But that's ok because AIG believes they will be able to get good prices for the assets they plan to sell.

Who's next you ask? Well, the housing industry is looking for a bailout. It's this industry that is right in the middle of the cause of the economic collapse so if anyone should get government funding it's them. Many analysts believe the economy won't recover without the housing market turning around. You'd think this would be a priority for the government.

Fannie Mae lost $25 billion more, so they're looking for more bailout money too.

General Motors, whose bankruptcy is likely even with bailout funding from the government, is looking for $35 billion. That's more than the bailout of Chrysler in 1980.

Circuit City filed for bankruptcy today to add to a list of retailers going out of business before the holiday season is even here. They plan to stay in business while they're working on a restructuring plan. Twenty three percent of their stores are closing and they plan to layoff 7,500 workers.

Gerald Cassidy from RBC Capital Markets says that there are likely to be more problems with the top 25 banks in the 4th quarter. Regional Banks are faring better primarily because they were not big participants in the sub-prime lending market. Cassidy believes that the TARP (Troubled Assets Recovery Plan) will solve our problems...eventually.

The upcoming holiday shopping season is expected to be very weak, this could and likely will lead to more retail bankruptcies.

Have a nice day!

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