As Crisis Deepens, Companies Want More Money
It seems that the companies the government has already bailed out, share one thing in common, they want more money. As the financial crisis grows worse, companies are lining up to Uncle Sam once again.
Whether it’s Citigroup, the auto makers or AIG, massive losses expected this quarter have them scrambling for more capital. Compared to the amount of money pouring into the banking system, the amount the auto industry is looking to get almost seems paltry.
AIG is expected to report the largest loss in U.S. corporate history this quarter, somewhere in the neighborhood of $60 billion. The likely credit downgrade that is sure to follow could leave it dangerously short of cash and it will need to rework it’s bailout plan, which has been revised once already from it’s initially unfavorable terms.
No one knows what to do with the banking system and any choice they make is going to be expensive. Investors are running scared because of the off chance that some of the nation’s largest banking institutions could be nationalized, completely wiping out shareholder equity.
The solution that people know will work, the plan to clear the banking system of toxic assets is of course the most expensive and could cost the government trillions if they go that route. Needless to say they would like to try some cheaper alternatives first.
For the time being they’ll give Geithner’s financial stability plan a chance to stabilize a banking system that has been in free fall ever since the bankruptcy of Lehman brothers. It will take a few months to put in action and it remains to be seen whether the banking system will be better or worse off when it’s all said and done.
