AIG Rating Cuts Causing New Round Of Problems

With AIG’s rating being cut from A minus to AA minus, the company must raise even more money than initially believed. If the money can not be secured by mid week, the company will also go the way of Lehman, though with much greater consquences.

Goldman and JP Morgan are currently trying to assemble $70-75 billion in loans for AIG, whose shares are currently down 37% today, at the urging of Hank Paulson and the rest of the Federal government.

WSJ: American International Group Inc. was facing a severe cash crunch last night as ratings agencies cut the firm’s credit ratings, forcing the giant insurer to raise $14.5 billion to cover its obligations.

With AIG now tottering, a crisis that began with falling home prices and went on to engulf Wall Street has reached one of the world’s largest insurance companies, threatening to intensify the financial storm and greatly complicate the government’s efforts to contain it. The company, whose stock fell 61% yesterday, is such a big player in insuring risk for institutions around the world that its failure could shake the global financial system.

AIG has been scrambling to raise as much as $75 billion to weather the crisis, and people close to the situation said that if the insurer doesn’t secure fresh funding by Wednesday, it may have no choice but to opt for a bankruptcy-court filing.

“The situation is dire,” a person close to AIG said.

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