American International Group Inc. (AIG) got a $150 billion government rescue package – almost double the initial bailout deal of less than two months ago and the largest ever granted to a private U.S. company – as the ailing insurer continues to burn through its cash at an accelerating rate.

The New York-based AIG will get $40 billion of new capital from the U.S. Treasury Department’s $700 billion bailout package, to help offset the damage wreaked by four consecutive quarterly losses, including a third-quarter deficit of $24.5 billion that the company announced yesterday (Monday), Bloomberg News reported. The U.S. Federal Reserve also is slashing an $85 billion loan to $60 billion, and is replacing a separate $37.8 billion loan to the insurance company with $52.5 billion in aid.

These actions were taken by the Treasury Department and the Fed after it became clear that the original deal

...

American International Group Inc. (AIG) got a $150 billion government rescue package – almost double the initial bailout deal of less than two months ago and the largest ever granted to a private U.S. company – as the ailing insurer continues to burn through its cash at an accelerating rate.

The New York-based AIG will get $40 billion of new capital from the U.S. Treasury Department’s $700 billion bailout package, to help offset the damage wreaked by four consecutive quarterly losses, including a third-quarter deficit of $24.5 billion that the company announced yesterday (Monday), Bloomberg News reported. The U.S. Federal Reserve also is slashing an $85 billion loan to $60 billion, and is replacing a separate $37.8 billion loan to the insurance company with $52.5 billion in aid.

These actions were taken by the Treasury Department and the Fed after it became clear that the original deal

...

HIDDEN VALUE

Dear Friend,

Poor old AIG.

Turns out the government handout it got in September was a bit harsh. But things are looking up. Uncle Sam has now agreed to give it another $40 billion in taxpayers’ money and reduce the rate of interest it has to pay on the loans.

“I think the new package is a quantum improvement over the old one,” said AIG chief Edward Liddy of the new deal.

No doubt, Mr. Liddy is ecstatic.

Mr. Market also had reason to be pleased. News that China had approved a $586 billion economic ‘stimulus’ package sent stocks soaring in the first minutes of trading today.

Never mind that Circuit City has gone belly up…or that Deutsche Bank has declared shares in GM worthless.

Of course, GM is hopeful that it, too, can get its hands on some of taxpayers’ hard-earned cash.

—Special—

The Ingenious “Mammoth Hunting

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American International Group Inc. (AIG) got a $150 billion government rescue package – almost double the initial bailout deal of less than two months ago and the largest ever granted to a private U.S. company – as the ailing insurer continues to burn through its cash at an accelerating rate. The New York-based AIG will get $40 billion of new capital from the U.S. Treasury Department’s $700 billion bailout package, to help offset the damage wreaked by four consecutive quarterly losses, including a third-quarter deficit of $24.5 billion that the company announced yesterday (Monday), Bloomberg News reported. The U.S. Federal Reserve also is slashing an $85 billion loan to $60 billion, and is replacing a separate $37.8 billion loan to the insurance company with $52.5 billion in aid. These actions were taken by the Treasury Department and the Fed after it ...

By all reasonable measures, we are already in a recession, says Shah Gilani. Deflation has become today’s number one threat. But massive government rescues mean another bout of inflation looms on the horizon. Shah says investors should look to short vulnerable stocks in 2009. But in 12-18 months, they should be prepared for a “generational opportunity” to make a fortune.

This from Money Morning:

If there’s a proverb that captures the outlook for the U.S. economy in the New Year, it’s the one that says: “It’s always darkest before the dawn.”

Regardless of any formal announcement of whether or not the United States drops into an actual recession, the ongoing credit crisis guarantees a contraction of the American economy by virtually every measure we know. That period of darkness will be marked by a dramatic slowdown in economic activity, as well as by rising unemployment, additional declines in U.S. stock prices,

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While the U.S. government’s plan to invest $250 billion into U.S. financial institutions has been billed as a strategy that will bolster the health of the banking system and also jump-start lending, the recapitalization plan is likely to have a secondary effect – one that whipsawed U.S. taxpayers likely won’t be very happy to learn about. Those billions are a virtual lock to set off a merger tsunami in which the biggest banks use taxpayer money to get bigger – admittedly removing the smaller, weaker banks from the market, but ultimately also reducing the competition that benefited consumers and kept the explosion in banking fees from being far worse than it already is. One last point: Experts say that takeovers financed by the government infusions are likely to have less of a beneficial impact on the economy than an actual increase in ...

Short-term lending rates fell after a week of unprecedented government intervention in the global financial markets helped to encourage banks to resume lending. The dollar-denominated three-month London Interbank Offered Rate (LIBOR) dropped 40 basis points over the course of the week to 4.42% – its first such decline since July. Short-term rates quoted in euros and yen also dropped. The overnight rate hit 1.67% – reaching its lowest level since September 2004 – after it dropped slightly more than a quarter percentage point last week. “LIBOR rates continue to edge down, bringing the prospect of some rejuvenated interbank lending that little bit closer, even if it is still some way distant,” Daragh Maher, deputy head of global currency strategy in London at Calyon, the investment-banking arm of French lender Credit Agricole SA, told Bloomberg ...

In the mid-80s Money Morning contributing editor Shah Gilani ran a hedge fund from the floor of the Chicago Board of Options Exchange Inc. As an independent market maker, he could trade in any pit on the floor. The most important lesson he learned there was how to play the crowd. It's one of the four basic rules of contrarian investing.

[This is the eighth installment of an ongoing series in which Shah Gilani breaks down the credit crisis for readers.] In the mid-80s, I ran a private partnership – call it a hedge fund – from the floor of the Chicago Board of Options Exchange Inc. (CBOE). I was an independent market maker, meaning I could walk into any trading pit on the floor and trade any options and any stocks. More often than not, one of my principal trading plans was to play the crowd. My approach was to walk into the pit and chat up the crowd. My intention was to gauge whether the other market makers and locals were net long (bullish) or net short (bearish). Most of the locals are independents and not extremely well capitalized. But I was. If I gauged the locals to be bullish, ...

“The commercial paper market is the thoroughfare where Wall Street merges into Main Street,” says former trader and hedge-fund manager Shah Gilani. The problem is the commercial paper market is dead. And the Fed can’t prop it up for ever. When the Fed’s commercial-paper buying scheme ends expect more bank failures.