If the AIG bailout were a car loan...

Posted at 1:28 PM on September 17, 2008 by Bob Collins (5 Comments)
Filed under: Economy

The federal government, as you probably know by now, is bailing out the ailing AIG with an $85 billion loan. It'll be paid back over two years as the insurance giant sells off its assets.

The terms: the LIBOR overnight rate banks lend to each other, plus an extra 8.5 percent for two years.

I figure the current LIBOR rate is 3.13%, so the total loan is 11.63%.

What if that were a car loan? How much would it mean to the old family budget? I fired up the Excel loan amortization schedule (which you can download and play with here).

Your first payment will be due in October:

Monthly payment: $3,986,574,012.02
Interest: $823,791,666.67
Principal: $3,162,782,345.35

Add an extra $39, of course, if the payment is late.

AIG should at least get a free toaster.

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Comments (5)

I am wondering: Did AIG have their credit checked with any of the reporting agencies? And if so, what was their credit score? Do you think that maybe they could have used one of the businesses that help with improving their score (ie freecreditcheck.com)?

Posted by boB Sinclair | September 17, 2008 2:03 PM

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Minor quibble: The reporting I saw said they're using the 3 month LIBOR, which is 2.88, not the 1 year LIBOR.

The math is generally interesting. If the car loan formula applies, they still apparently have to find a way to sell of $4 billion in assets every month. I wonder how easy that will be, with all the vultures circling, sensing the good deals soon to be had.

Posted by bsimon | September 17, 2008 2:31 PM

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To bad it isn't two years ago. They could have gotten an interest only loan and not have to have any assets. Oh wait...

Posted by brian | September 17, 2008 3:00 PM

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I wonder if this will be a REAL loan? Or will it be one of those Minnesota state-government-loans-to-big-businesses loans where it starts out as a loan to make it politically acceptable but eventually -- when all the hubub dies down -- some legislator files a bill to forgive it?

Posted by Bob Collins | September 17, 2008 3:34 PM

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"I wonder if this will be a REAL loan? Or will it be one of those Minnesota state-government-loans-to-big-businesses loans where it starts out as a loan to make it politically acceptable but eventually -- when all the hubub dies down -- some legislator files a bill to forgive it?"

Depends on who's running the show when the bill comes due. I saw a reference to Reagan & the chrysler bailout today. The point made was that Chrysler had to pay the taxpayers back, if they made it out of their fiscal crisis. They made it out, but Iacocca tried to talk the gov't in forgiving the debt. Reagan said no. Whether that would happen this time around ... who knows?

Posted by bsimon | September 17, 2008 3:39 PM

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