This past week we saw Lehman Bros go bankrupt --- and AIG, the Largest Insurance Company in the World --- get an $85 Billion bailout from the US Federal Reserve System.
Even more alarming to me than the fact that AIG needed a Bailout, are the terms of the Bailout.
Home loans to individuals with decent credit and adequate equity (ratio of loan to appraised value) are getting 30 year fixed rate mortgages in the 6% range.
The terms of the AIG Bailout however calls for an interest rate close to 12% !!!!
Obviously, the Fed does not have a whole lot of confidence in AIG's assets -- or its ability to repay the loan -- if it is charging Twice the rate that a homeowner would get.
Keep in mind that companies like AIG are use to borrowing money at low single digit rates --- indicative of investor confidence.
This Bailout, however, is akin to getting a high interest loan from a Finance Company --- or getting jacked up by a credit card company.
This is NOT a good sign for our economy here --- or globally for that matter.
In future postings to my blog, I will explore further some of the reasons our economy has become such a mess --- and why the Middle Class, especially, is on the verge of extinction !
WHAT DO YOU THINK ? YOUR COMMENTS ARE WELCOME !!
