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By a vote of 263-171, the House of Representatives on Friday accepted the Senate's revised version of the $700 billion plan for the Treasury to intervene in financial markets. In Division C - the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 - the transfer to qualified charities from IRAs was included. This permits an IRA owner to make a direct transfer to charity in 2008 and 2009. The transfer may not exceed $100,000 (it can be any amount less than $100,000) in either year - it can be $100,000 in each year. The IRA owner must be 70 1/2 or older. IRA transfer gifts may be made to Sec. 509(a)(1) and Sec. 170(b)(1)(A) public charities. This can also include Sec. 170(b)(1)(A) conduit foundations. The qualified charitable distribution may not be made to a Sec. 509(a)(3) supporting organization or to a donor advised fund described in Sec. 4966(d)(2). Private foundations are also excluded, with the exception of the conduit private foundation. Charitable remainder unitrusts, charitable remainder annuity trusts, pooled income funds and charitable gift annuities are not qualified to receive transfers under this provision.
10/3/2008 futurefocus.net

AIG Receives $150 Billion Government Bailout; Posts Huge Loss

WASHINGTON/NEW YORK (Reuters) – The government restructured its bailout of American International Group Inc, raising the package to a record $150 billion with easier terms, after a smaller rescue plan failed to stabilize the ailing insurance giant.

The Federal Reserve and the Treasury Department announced the new plan on Monday as AIG reported a record third-quarter loss of $24.47 billion, largely from write-downs of investments.

The new package, at least $27 billion more than was previously extended, will leave the government exposed to billions of dollars of potential losses.

AIG, once the world's largest insurer by market value, nearly collapsed after being forced to post large amounts of collateral related to exposure to complex derivatives known as credit default swaps.

Many of these securities were linked to the performance of residential mortgages, and lost value as the U.S. housing downturn mushroomed into a global credit crisis.

"We cannot continue to hemorrhage cash in the two areas of securities lending and credit default swaps," Chief Executive Edward Liddy said on a conference call. "We need to stop that, and we need to stop it now."

Under the new plan, the government will get a $40 billion equity stake in AIG, spend as much as $30 billion on securities underlying the insurer's credit default swaps, and spend up to $22.5 billion to buy residential mortgage securities.

It will also reduce a previously announced credit line to $60 billion from $85 billion, and lower interest rates on borrowings. AIG will also accept curbs on executive pay, including a freeze of bonuses for its top 70 executives.

"The restructured bailout should give AIG the flexibility to sell assets in an orderly manner for closer to their intrinsic values rather than fire-sale prices," CreditSights Inc analyst Rob Haines said. "Moreover, we believe that it will help to restore confidence in AIG's global franchise."

Shares of AIG were up 26 cents, or 12.3 percent, at $2.37 in afternoon trading on the New York Stock Exchange. The cost of protecting AIG debt against default declined, indicating that investors see less risk.

'ROBUST DISCUSSIONS'

AIG will issue preferred shares to the government that carry a 10 percent dividend. The government will maintain its roughly 80 percent stake in AIG, making it the biggest beneficiary of the revised bailout.

In an interview, Liddy said it's possible the ownership stake could fall as AIG gets its finances in order.

"Once all of this is repaid, and we don't need that (credit) facility anymore, I think we will have some rather robust discussions about that ownership percentage," he said.

He acknowledged the possibility, though, that even $150 billion might not be enough. "There is more breathing room, but the answer is, 'What do you think is going to happen to capital markets?'" he said. "Under any normal scenario, I think we are in pretty good shape. But you can never say never."

The $40 billion equity infusion comes from the $700 billion financial bailout package passed into law last month.

That package was originally intended for banks, and AIG is the first company other than a bank to get money from it. It was created after the government announced the original $85 billion bailout package for AIG on September 16.

"Today's action was a one-off event," Neel Kashkari, the Treasury Department's interim assistant secretary for financial stability, said at a conference in New York. "It is not the start of a new program."

White House spokeswoman Dana Perino said "AIG, being clearly within that financial service sector, is what Congress had in mind when it passed the rescue package."

She called AIG "a large, interconnected firm," and said the new package "will allow AIG to continue to restructure themselves in a way that will not hurt the overall economy."

A Treasury Department official said a member of President-elect Barack Obama's transition team was briefed on the transaction Sunday night.

The $60 billion credit line will mature in five years, while the $85 billion line was set to mature in two years.

A longer maturity could reduce the potential that AIG would have to quickly sell assets at depressed prices to help repay the government. The Fed slashed the interest rate on the credit line by 5.5 percentage points, to 3 percentage points above the three-month Libor (London Interbank Offered Rate).

BIG QUARTERLY LOSS

The revised plan depends on the government being able to convince holders of securities underlying AIG credit default swaps to sell them to the government, likely at a discount.

"The biggest questions attached to these new vehicles are who is going to take how big of a haircut, and when," said Donald Light, an analyst at Celent LLC in San Francisco.

Struggling automakers General Motors Corp, Ford Motor Co and Chrysler LLC have also requested tens of billions of dollars in government help.

AIG posted a quarterly loss of $24.47 billion, or $9.05 per share, compared with a profit of $3.09 billion, or $1.19 a share, a year earlier.

Revenue fell to $898 million from $29.8 billion, reflecting the write-downs. AIG also had $1.39 billion in catastrophe losses, primarily from Hurricanes Gustav and Ike.

Credit default swaps led AIG to $18 billion in losses in the nine months ended June 30.

The cost of protecting $10 million of AIG debt against default for five years fell on Monday to $1.9 million up front plus $500,000 annually, according to Markit Intraday. The upfront payment was $4.9 million on Friday.

10 Things To Do With Your Money Right Now

Signs that the credit crunch is finally easing have emerged this week as big banks are lending to one another again. That's good. But it's hardly an all-clear shout. There's no telling if the budding recovery in credit markets will stick, and at this point a recession appears all but certain. So it's not too late to take defensive action. Here are 10 things to do right now to protect your financial future.

1. Hold More Cash

As always, when things get nutty in the markets cash is king. A healthy cushion in bank CDs or money market funds will let you ride out the slump without having to sells assets at fire-sale prices. A cushion will also put you in position to invest when the downturn's bottom is in sight — and that could come sooner than you expect. Mark Henn, a financial planner at Harvest Advisors in Cincinnati, says that stocks usually get a lift when the government takes extraordinary steps to fix a crisis — like taking ownership stakes in private banks. That's being done now in the U.S. and other countries. "It doesn't feel comfortable," he concedes. "But now's the time to buy while things are on sale." Tread slowly if you do jump back in, though, and before you go bargain hunting first build your cash position to at least a year's worth of living expenses, longer if you are retired.

2. Find Something To Cut

3. Pay Down Debt

It may seem like an overwhelming task, so do it by focusing on one piece at a time. Start by paying off your credit card with the smallest balance. You'll feel empowered once you've cleaned that slate. Then move to the card with the highest interest rate, and then onto consumer loans with variable rates. Where will you get the money? If you get a raise, or pay off a car or student loan or become free from some other regular expense don't spend the difference — dedicate it to debt reduction.

4. Make Sure Your Money Is Safe

The federal government recently raised the amount of deposits per person per institution that it will guarantee to $250,000 from $100,000. But it had been discussing a limitless guarantee. So don't be confused. More important, this is a temporary bump in coverage that may last only through the end of 2009. So if you consolidate deposits in a single institution you may have to reverse the process in little more than a year. To keep things simple just play by the old rules — keep no more than $100,000 in any one institution, at least until it becomes clear that the higher limit will be made permanent. There have been no changes to government guarantees regarding securities held in a brokerage account. The limit is $100,000 of coverage on cash deposits and up to $500,000 on other securities like stocks and bonds. Note: the government does not guarantee against investment losses; only that the securities you own will be returned to you at prevailing market prices should your broker fail.

5. Diversify Internationally

You should always have your savings spread among large, medium and small stocks, bonds, and have some cash stowed in a safe short-term security. Now it's more important than ever to hold some foreign stocks and bonds as well. If the crisis deepens, the costs could prove so staggering to the government that the dollar will plunge and interest rates will rise. Foreign holdings won't be immune to the fallout, but they'll at least offer a buffer.

6. Refinance Your Variable-Rate Mortgage

Believe it or not, long-term interest rates have actually been climbing in recent weeks, making mortgages more expensive. That's odd given the likely recession ahead. But long-term rates could continue to climb as the government pumps money into the economy and bond traders worry about a weaker dollar and inflation a little further down the road. If you are saddled with a variable-rate mortgage where the rate is set to jump in a year or two you may be better off locking in a 30-year rate today, even if it's higher than the rate you are currently paying.

7. Don't Panic

The end of the world only comes once. I'm pretty certain this isn't it. That means that stocks and bonds and real estate and jobs and business activity will all bounce back eventually. Selling assets now might prove to be an even worse decision than buying bank stocks at the height of mortgage mania a couple years ago. Reassess how much risk you are comfortable with, recognizing that stocks go down 10% often, 20% with some regularity and more than 30% occasionally. Yet they have always gone higher in the long run. If you just can't take the near-term gyrations you have too much in the market and should settle on an asset allocation you can live with — 60% stocks, 30% bonds, 10% cash is fairly conservative. To avoid making any big mistakes, rebalance your portfolio every six months — selling what has risen and buying what has fallen to keep your bonds and cash and stock exposure at your target allocation. With prices depressed, this is a good time to start a dollar-cost-averaging strategy — investing a set amount of money into a predetermined stock fund every month or every quarter.

8. Check Your Credit Card Rate

In recent years it has become much easier for card companies to quietly raise your interest rate if you miss even a single payment. Call them and find out your rate, and if you've been dinged ask them to revert to the more favorable rate that you began with. It doesn't always work, but card companies don't want to lose your business, especially if you have a record of paying. If you missed just one payment you should have no trouble.

9. Check Your Most Recent Bank and Brokerage Statements For Accuracy

The pace of mergers and takeovers in the financial services industry has quickened as weak institutions fall into the arms of stronger ones. Given the upheaval of the past month it's possible — though, thankfully, far from likely — that your statement may contain an error. If you do not correct it promptly and your institution is taken over you will, at best, have a long and difficult case to press to get your money back.

10. Be A Lender

If for some reason you find yourself flush while everyone around you is starved for capital, take advantage by extending a loan to a friend, family member or even a third-party. Banks are being stingy, which creates opportunity for you in the fairly new P2P (peer-to-peer) loan market pioneered by Virgin Money and Lending Club. These are often vehicles for extending family members fully documented and collateralized loans at a favorable rate. But if you think stocks are dead money for a while and don't like the looks of paltry money market fund yields, you may be able to do better offering a market-rate loan through this new frontier of finance.

By Dan Kadlec, time.com

Treasury Officials Say Bailout Needs Time To Work

NEW YORK(CNNMoney.com) -- The government is pumping billions into the financial system under its $700 billion bailout plan, but it will take time before banks start lending, the Treasury official heading the effort said Monday.

Less than half of the $250 billion being injected into financial institutions has been distributed, said Neel Kashkari, interim assistant Treasury secretary for financial stability. It will take a few months to complete the investments, he said.

Also, since the capital markets remain fragile and confidence is still shaky, banks remain hesitant to lend, said Kashkari, speaking before the Securities Industry and Financial Markets Association. Once confidence returns, the government believes banks will use the capital to provide funding to creditworthy businesses and consumers.

"We've already heard from regional banks who have applied to the program and plan to use the funds to take on new borrowers," Kashkari said. "To many banks, this is just common sense."

Asked whether the government would make banks rework the mortgages of troubled borrowers, Kashkari said the industry has made progress, modifying 200,000 loans a month, though more needs to be done.

"We continue to work hard to get them to do more and help as many homeowners as they can," he said.

In the five weeks since Congress approved the bailout, the Treasury Department has focused on injecting capital into banks. Nearly 50 financial firms have won full or preliminary approval to receive a total of $172 billion in equity injections. The government has yet to award another $78 billion. Most institutions have until Nov. 14, though private banks have additional time.

However, institutions have come under fire for not increasing their lending despite all the government intervention.

Other companies, including the troubled car makers, are also clamoring for a piece of the government's largess.

While it is resisting coming to Detroit's rescue, the government on Monday moved to once again prop up troubled insurer American International Group (AIG, Fortune 500), using its new authority under the bailout plan.

AIG got a reworked $152.5 billion deal, as the Federal Reserve and Treasury Department made significant changes to the terms of the company's original bailout. Kashkari stressed this was a "one-off event" to ensure the system's stability, not the establishment of a new bailout program.

The Fed announced that it will reduce AIG's original $85 billion bridge loan to $60 billion, and it will cut the interest rate by 5.5 percentage points. In addition, the Treasury will use its special authority under last month's $700 billion bailout law -- the so-called Troubled Asset Relief Program -- to purchase $40 billion in preferred stock.

The new bailout was worked out between government officials and AIG executives over the weekend. AIG was having difficulty paying back its original bridge loan, which it intended to use to sell off many of its subsidiaries to restore the company to a stable condition. But the credit crisis has proven to be a difficult environment to spin off assets.

"This action was necessary to maintain the stability of our financial system," Kashkari said, noting that AIG must limit its executive compensation. "We recognize the financial system remains fragile and we continue to stand ready to prevent systemic failures."

The financial industry is also waiting for the government to roll out a plan to take troubled assets off banks' books -- the original aim of the bailout. Kashkari said it's up to Treasury Secretary Henry Paulson to decide when to take that step.

President-elect Barack Obama said Friday that he would review the implementation of the bailout plan to make sure it was accomplishing its goals of stabilizing the financial markets, protecting taxpayers and helping homeowners.

"It is critical that the Treasury work closely with the FDIC, [Department of Housing and Urban Development] and other government agencies to use the substantial authority they already have to help families avoid foreclosure and stay in their homes," Obama said.

First Published: November 10, 2008: 10:56 AM ET

Congress Passes Tax Extenders and Alternative Minimum Tax Relief Act of 2008

AIG Receives $150 Billion Government Bailout; Posts Huge Loss

10 Things To Do With Your Money Right Now

Treasury Officials Say Bailout Needs Time To Work

AIG Receives $150 Billion Government Bailout; Posts Huge Loss