AIG to be saved: Fed steps in to arrange an $85bn (£45bn) loan to rescue the insurance giant AIG, as just reported. In return, it is getting a 80% stake in the company.

The other day I made a comment about banks and regulators not seeming to have learnt the lessons of the past. One such lesson I had in mind was central banks (=the Fed) acting as a lender of last resort to failing financial institutions in time of global economic crises. In the 1930ies, the Great Depression in the States was made much more severe for the Feb not stepping in and allowing institutions to fail.

Today, the Fed showed that it can act the part and does remember the lesson learnt in the 1930ies. Bravo.

Lehmans fate: However it does not explain why the Fed did not follow a similar approach for Lehmans. Can it be that the Fed is standing to make money out of the AIG deal, but Lehman is too “toxic” and unpalatable for the Fed? In which case the Fed would seem to be acting like a business, not as a central bank, and arguably carving out a new role for itself on the market? In its logical conclusion, iImagine the Fed or the Bank of England taking a position on the market and short-selling to make a quick buck.

Lucky that Barclays are interested in at least cherry-picking some of Lehmans assets. As the BBC reports, “Barclays does not want Lehman’s “toxic investments in the residential and commercial property markets. Nor does it want Lehman’s surviving, unsettled transactions”. 80% of US’s 10000 Lehmans employees might have a job at the end of it, but this is far less certain for the 5000 working in London.  

Interesting times are ahead for sure.

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