Gov. Paterson announces $20B deal to help save AIG from Lehman fate
BY HELEN KENNEDY
DAILY NEWS STAFF WRITER
Monday, September 15th 2008, 1:19 PM
Wall Street was in panic mode Monday as the shocking crash of investment bank Lehman Brothers sparked fears of a world-wide recession.
Stocks fell 300 points as the credit catastrophe spawned by millions of bad home mortgage loans continued to wreck havoc in the financial sector.Hang those CEOS...and Brogers for kissing their ass.
Global insurance giant AIG led the slide, losing 70% of its value in just three hours.
In a dramatic announcement just after noon, Gov. Paterson announced a $20 billion deal in which New York State would change its regulations to allow AIG to borrow against its subsidiary assets to stay afloat.
It was crucial, he said, to save 8,500 AIG jobs in New York.
"They are a critically important business enterprise. They are a very rich contributor to New York's place in the global financial market," he said.
Paterson insisted no taxpayer dollars were being used in throwing AIG a lifeline.
After Paterson's announcement, AIG's stock price showed some signs of recovery.
Lehman filed for bankruptcy after frantic government maneuvers over the weekend failed to secure a rescue. The fall of the country's fourth-largest investment bank is one of the biggest failures in Wall Street history.
Wall Street veterans said the Street hasn't seen a more dramatic day since 1929.
"You could asked me five years ago, 'would you ever see a day like this?' and I think - not just me, but most people - would say 'that's never going to happen,'" said former Goldman Sachs chairman and New Jersey Gov. Corzine on CNBC.
Lehman collapsed under the weight of $60 billion in soured real estate holdings - opting for Chapter 11 protection that will let it restructure while holding creditors at bay.
Paterson said 30,000 jobs could be lost, a major blow to the city.
Merrill Lynch, afraid it would be next, hurriedly sold itself to Bank of America. The massive $50 billion merger took only 48 hours to complete, so spooked were all the players.
Bank of America now rivals Citigroup Inc. as the biggest U.S. bank in terms of assets.
Of the five giant investment banks that ruled Wall Street - Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley and Goldman Sachs - only the latter two are still standing.
And they are quaking.
The great fear is that Lehman's collapse will trigger a panic run on other financial institutions hard hit by the credit crisis, namely banks like Washington Mutual and insurance companies like AIG.
A consortium of banks from the U.S. and abroad, working with government officials in New York, announced a stunning emergency $70 billion pool of funds to lend to troubled financial companies.
The unprecedented plan aimed to prevent a worldwide panic on stock and other financial exchanges.
Lehman's bankruptcy means "the risk of an immediate tsunami" looms for financial markets worldwide, said Bill Gross, chief investment officer of Pacific Investment Management Co.
Corzine said he worried the frantic weekend dealings to save Lehman and Merrill ignored the nation's larger economic woes - unemployment rising even as home values and consumer confidence crater.
"I think there's a big, big problem that is being ignored by the weekend work sessions, and that is the core problem that we have in the economy," he said.
The Lehman and Merrill woes come just a week after the feds swooped in to save Fannie Mae and Freddie Mac - a taxpayer-funded bailout they made clear they would not repeat.
Powerful Wall Street execs, including Citigroup's Vikram Pandit, JPMorgan Chase's Jamie Dimon, Morgan Stanley's John Mack and Lloyd Blankfein of Goldman Sachs, wrangled all day over how to save Lehman.
Barclays, one of two remaining front-runners to save the beleaguered investment firm, withdrew its bid; Bank of America also refused to rescue Lehman.
Dozens of grim-faced Lehman employees streamed into the beleaguered firm's Manhattan headquarters in search of answers and camaraderie.
Several dejected analysts carried boxes full of their personal items out of the building, fearing they may never be allowed back in.
"I wouldn't describe the atmosphere as grim," said an employee who identified himself as a vice president of equity research. "It's more frustration and resignation. There is some hope that something can be done."
Mayor Bloomberg canceled a trip to California to meet with Gov. Arnold Schwarzenegger to monitor the Wall Street crisis.
The collapse is the newest black eye for the city's investment banking industry, which has suffered $120 billion in losses.
The collapse of Lehman, coupled with big cuts at other firms, is having a massive effect on hundreds of other businesses, from real estate to restaurants.
Thousands are out of work in the financial industry alone - with more expected to follow.
The Lehman talks originally were aimed at selling the troubled investment bank, in whole or parts.
The once-mighty firm is drowning in a sea of red ink from the credit crunch, and its stock had already lost nearly 95% of its value.