Some Explanations (Zombies Optional)

[servingdonuts]

Here is an excellent overview of the recent goings-on surrounding Fannie Mae, Freddie Mac, Lehman Brothers, AIG, and (going back in time a bit) Bear Stearns.  Here is a different one that's somewhat less excellent, and somewhat less of an overview, and a whole lot less detailed... but well worth reading, both for the explanations and the writing

Comments

[chapel_of_words]

Which all makes sense in the world of theory, until humans get involved.

The new AIG CEO has stated: ""My intention is not to liquidate the company, the mess is solvable.''

http://www.cnbc.com/id/26777412

Now he could be posturing, to restore calm and settle things down before going into liquidation so as to preserve prices. But it will be interesting to see if AIG does go forward to liquidate assets or just keeps on humming, and whether the Fed will exercise its veto rights over major decisions to nudge it one way or another.

Tim C.

[servingdonuts]

They're going to have to get real profitable real fast if they want to avoid liquidation. The Fed is charging them interest on their bridge loan at LIBOR plus 8.5%. To make payments they're going to have to either start running in the black or start selling off assets... and presumably, if they don't make their payments, the Fed will invoke the warrants, acquire their 80% shareholder interest, and say "No, actually, we *will* be liquidating."

But hey, if the new CEO can turn things around in a month, more power to him.

[chapel_of_words]

I see three scenarios.

Scenario A: The pressures as you indicate force the CEO to liquidate. YAY!

Scenario B: The CEO thinks he can withstand the pressures and make the company solvent, he does so paying back the Fed loan ahead of schedule. YAY! (And a ticker tape parade in NYC for financial Play of the Day).

Scenario C: The CEO thinks he can do B, and he can't. Either the Fed has to veto his decisions, let them run its course or as you say exercise their control and begin liquidating. Any scenario under C looks, to me, like what we saw on Monday, we've just shifted the date.

Let's hope he picks the right door!

Tim C.

[skellington]

I love this explanation for the layman:

http://bigpicture.typepad.com/comments/2008/09/laymans-explana.html

(This blog is really good, btw.)

[cwjordan]

I'm not really clear on what investment banks actually do these days? Regular banks I sort of understand I think.