The Fed said that the loan is collateralized by all the assets of AIG and of its primary non-regulated subsidiaries.
Presently, if credit is available at all, it is only when it is collateralized by hard assets: plant, equipment, inventory, receivables, etc.
[cartoon id= a14415"] Geithner and Paulson proposed extending an $85-billion 85-billionwouloane collathatlized by all of A.I.G.'s assets.
"Several clients who had loans that were collateralized by stock put collars on the stock they had so they could protect themselves against margin calls," said Cornelia Spring, Morgan's product manager for derivatives.
According to a letter on April 27 , 1987 from Harken's general counsel to Mr. Bush, the note was collateralized by the 80,000 shares he was buying plus the "shares due to you from Harken's acquisition of Spectrum 7 Energy Corporation".
In connection with that offering, the company made one disclosure that turned out to be prescient: The company's borrowings "are collateralized by the value of our portfolio of mortgage assets," it said.
In "plain vanilla" deals, that is about as far as it goes -- a special-purpose entity, for example, buys a pool of car loans from the General Motors Acceptance Corporation, using money it got by selling public securities that are collateralized by those loans.
In the case of A.I.G., the Fed's loans were collateralized by the entire assets of the firm, based on the observation that A.I.G. had potentially huge losses at its unit that sold credit default swaps but the rest of the firm was a successful insurer.
The FDIC-guaranteed debt would be collateralized by the purchased assets and the FDIC would receive a fee in return for its guarantee.
It was designed to stimulate an important part of the credit market based on securitized loans by providing a facility to lend up to $1 trillion in loans to buyers of top-rated securities that are collateralized by credit-card debt, auto loans, student loans, small business loans and commercial real estate loans.
They're collateralized by the same securities but can amount to as much as 95% of a portfolio.
