Is it the end or just the beginning?
Today's Financial News - Posted December 31, 2008
We have reached the end of a tumultuous year. Unfortunately, a change in the date does not spell relief for the credit markets. Investors could start the New Year with a nasty hangover.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore—(TFN): We have finally made it to the last trading day of 2008. Unfortunately, there are absolutely no signs that we will be leaving the worst of the credit crunch behind us. In fact, it looks like we may very well see our troubles compounding over the next twelve months.
That fact is especially true for GMAC. The ink is barely dry on the financially torn lender’s bailout from Uncle Sam, yet the bad news continues to come rolling in. Even though the economically critical company received a $6 billion check from the Treasury yesterday, many major hurdles still exist.
After extending the deadline several times, GMAC ‘s debt-to-equity tender finally expired. With just $21.2 billion brought in from the deal, the company was significantly below its $30 billion goal. Even with Washington’s $6 billion contribution, the lender fell $2.8 billion short.
I am sure even more taxpayer money will help take care of the solution.
Rules, what rules?
While we are on the subject of taxpayer money, AIG is once again asking for help from Washington. It turns out, the $60 billion loan it took from the government is harder to pay off than it thought. The company is asking the Federal Reserve to change a few rules so it can have a better shot at making its payments.
You see, AIG planned to sell off many of its assets in order to raise the cash needed to pay back the taxpayers that saved it. But with the prices of just about everything plummeting, it is having a tough time finding buyers qualified to purchase what it is selling.
Right now, the Fed requires a buyer to use cash for at least 90% of the deal’s cost. But with cash scarce, AIG wants the government to modify those regulations. It wants to accept more equity or even allow installment plans.
Basically, AIG is up to its same old tricks; shoddy investors making even shakier investments.
As we enter the New Year, we can expect more of these sorts of stories. The hundreds of billions of dollars dumped into American businesses are nothing more than a weak patch in a growing hole in the haul of the nation’s economy.
Investors need to be aware that the credit plague still exists and is spreading as rapidly as ever. There are still plenty of good investments to be made, but shy far away from the headline-making bailout “benefactors.”
They have more problems ahead.
Next Article: 2009 — The Age of the Grasshopper?
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