AIG has already received $150 billion to back $300 billion in derivatives contracts.
The Wall Street Journal gives a little more detail:
The new funding is intended to support AIG as it absorbs $60 billion in quarterly losses and operational and competitive upheaval. Under the plan, the insurer will repay much of the $40 billion it owes the Federal Reserve loan with equity stakes in two AIG units overseas -- Asia-based American International Assurance Co. and American Life Insurance Co, which operates in 50 countries.
Repayment was originally supposed to be in cash with interest. In addition, AIG will securitize $5-$10 billion in debt, backed with life insurance assets, to further reduce its debt burden.
So, what exactly are these life insurance assets?
Worthless Credit default swaps?
Even worse, AIG will be getting more lenient bail out terms:
The equity commitment would give AIG the ability to issue preferred stock to the government later, the source said.
The London Interbank Offered Rate (Libor) floor on the interest rate AIG pays on the government's credit line is expected to be removed under the new terms, which would save the insurer about $1 billion a year, the source said.
AIG currently pays 3 percentage points above three-month Libor.
AIG will also give the U.S. Federal Reserve ownership stakes in American Life Insurance (Alico), which generates more than half of its revenue from Japan, and Hong Kong-based life insurance group American International Assurance Co (AIA) in return for reducing its debt, the source said.
This is like the Wimpy hamburger derivative stand. I will gladly pay you Tuesday for a Hamburger Today.
Here comes TARP II, another $750 billion
U.S. firms have reported more than $700 billion in losses and writedowns since the start of 2007