AIG rescued

‘A disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance,’ according to the US Federal Reserve last night. As a result, the US government now owns 79.9% of the nation’s largest insurer, in return for providing an $85bn loan.

Does this new ‘rescue’ mark the end of the problems? Former EPCA speaker, Martin Wolf, is not optimistic in the Financial Times today. He sees 4 major areas where ‘excesses’ need to be unwound:

• ‘The fall of inflated asset prices to a more sustainable level
• De-leveraging of the private sector
• Recognition of resulting financial sector losses;
• Recapitalisation of the financial system’

He adds, that ‘making all this worse will be the collapse in private sector demand, as credit shrinks and wealth falls’.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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