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Saturday, July 4, 
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Greenberg fights on, but is the Fed listening?

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hank_greenberg.jpgMaurice "Hank" Greenberg, American International Group Inc.'s former chairman and largest shareholder with a roughly 10.4% stake, continues to cry out for a fair shake for his former company from the Federal Reserve, but the insurer's soon-to-be-largest stakeholder doesn't seem to be listening.

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Greenberg in a letter to AIG chairman and CEO Edward Liddy attached to a late Thursday SEC filing proposed that AIG be given access to the lower cost of capital available through the Fed's now wide-open discount window, which would allow AIG to borrow well below the rate of its punishing $85 billion government loan, which carries nearly a 12% interest rate. Greenberg also suggested that the outstanding balance of the government's loan be converted into preferred shares, in which the government would receive dividends.

Greenberg basically wants AIG to have access to a TARP-like plan like most other financial services firms, but everybody else did not come begging at the Fed's doorstep for $85 billion so they wouldn't implode. Greenberg does not seem to subscribe to the "beggars can't be chosers" theory.

Greenberg argues that AIG will be forced to engage in a fire sale of its assets to cover the Fed loan before it is bled dry by mounting interest payments. This, all amid tight capital markets. So far, AIG has received limited interest in its assets. All he wants is the breather that TARP has given other struggling financial institutions, who have avoided similar fire sales.

But AIG's window to renegotiate terms seems to be closing as it has reportedly borrowed most of the $85 billion. And this beggar keeps begging for more. Less than a month after receiving the initial $85 billion, AIG in early October tapped the Fed for an additional $37.8 billion.

Under the securities lending agreement, the New York Fed will borrow up to $37.8 billion in investment-grade securities from AIG subsidiaries in return for cash collateral. And AIG in a Thursday 8-K filing said it applied with the Fed to participate in a commercial-paper funding facility in which it will issue $21 billion in commercial paper to refinance its outstanding commercial paper as it matures, meet capital needs and make prepayments under the $85 billion loan.

So, in laymens terms AIG is borrowing from the government to pay back the government. - Michael Rudnick


Michael Rudnick is a senior reporter for The Deal.





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