What the Hell is Going on Guys?
Insurer American International Group struggled for survival a day after a financial tsunami swept away investment bank Lehman Brothers and forced the sale of rival Merrill Lynch in the biggest financial industry shake-up since the Great Depression.
AIG’s precipitous stock decline has led ratings agencies to threaten downgrades that could force it to post more collateral and nullify insurance contracts, possibly setting in motion a chain reaction that could threaten its survival.
In an ominous sign, Moody’s and Standard & Poor’s ratings agencies went ahead with downgrades after the market closed on Monday. S&P cut its AIG rating to ‘A-’ from ‘AA-’, while Moody’s downgraded AIG’s senior unsecured debt rating to A2 from Aa3.
“AIG seems to be the next guy on the chopping block,” said Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey.
Again seeking a private solution to Wall Street’s woes, the Fed had asked JPMorgan Chase and Goldman Sachs to explore arranging $70 billion to $75 billion in loans to support AIG, among other financing options, another person familiar with the situation said.
Fearing a financial meltdown, the U.S. presidential candidates sparred Monday over who could best restore the system’s health, with Republican John McCain pledging reform and Democrat Barack Obama saying hands-off Republican policies were the problem.
U.S. stocks tumbled across the board, with the Dow Jones industrial average dropping 504 points as Wall Street had its worst day since markets reopened after the Sept. 11 attacks.
There was speculation that Wall Street’s worsening meltdown could prompt the Fed to act.
U.S. short-term interest rate futures rose sharply Monday, reflecting the higher prospects for a rate cut at or before Tuesday’s Federal Reserve policy meeting.
And there were signs of widening macroeconomic shockwaves that could see a worsening of the credit crunch that has already threatened to worsen the housing downturn at the root of Wall Street’s troubles.
Largest US Bankruptcies in History
Lehman Brothers’ chapter 11 bankruptcy protection filing is the largest in history, dwarfing all others.
Take a look at the ten biggest corporate filings in US bankruptcy court, based on pre-bankruptcy assets.
Lehman Brothers
Pre-Bankruptcy Assets: $639 billion
Date Filed: Sept. 15, 2008
Worldcom
Assets: $103.9 billion
Date Filed: July 21, 2002
Enron
Assets: $63.4 billion
Date Filed: Dec. 2, 2001
Conseco
Assets: $61.4 billion
Date Filed: Dec. 18, 2002
Texaco
Assets: $35.9 billion
Date Filed: April 12, 1987
Financial Corp. of America
Assets: $33.9 billion
Date Filed: Sept. 9, 1988
Refco
Assets: $33.3 billion
Date Filed: Oct. 17, 2005
Global Crossing
Assets: $30.2 billion
Date Filed: Jan. 28, 2002
Pacific Gas and Electric
Assets: $29.8 billion
Date Filed: April 6, 2001
UAL
Assets: $25.2 billion
Date Filed: Dec. 9, 2002