Shares in AIG tumbled more than 60% on Monday morning and investors feared that AIG would face billions in additional losses because it had effectively guaranteed complex financial instruments which were tied to home loans whose values have now plummeted.
AIG had absorbed write-downs in its mortgage securities due to the failing US housing and real estate market. This, combined with the bankruptcy filing made by Lehman Brothers on Monday and the merger between Merrill Lynch and the Bank of America this past week, has left investors across North America wondering who is next to succumb to the Housing Crisis.
In a last ditch attempt to save the company, AIG sought help from the US Federal Reserve, asking for a 40$ billion dollar bridge loan. As a result, rating agencies had threatened to decrease AIG’s credit rating allowing counterparties to withdraw the capital from their contracts with the company. Economists said that should this have happened, AIG would have survived for 48-72 hours at most.
In response to this, and other leading investor’s outcries, US Presidential Candidate John McCain softened his stance and agreed to help out the flailing American International Group. The Federal Reserve rescued the company and offered a two year 85$ billion dollar loan to AIG, the country’s largest insurer, in exchange for an 80% stake in the company.
This bail-out, while expected to help AIG in the interim, is not a long-term solution and has left investors and economists alike, wondering how long AIG will survive. Unlike Americans, Canadian investors have the confidence in knowing that there are two other government regulated Insurance Companies, CMHC and Genworth, who ultimately provide Canadian investors with insurance options and additional security.
At MBN Mortgage we have the ability to access all three insurers and offer our customers and investors the ability to receive financing through over 40 lenders, and the ability to have their financing insured through alternate companies, outside of AIG.
CMHC, and Genworth, two of Canada’s largest insurers have paired up with the Canadian Government, and have tightened the rules on their government backed mortgages in the hopes that they avoid the housing meltdown that has damaged the US economy. In doing so they are effectively ensuring their stake and security in the Investment and Housing Market. This change marks a responsible and measured approach by both the Insurers and the Government to ensure Canada’s housing market remains strong and to reduce the risk of a US style housing bubble developing in Canada.
While many consumers are leery of investing in the US, in both their securities and housing sectors, investors are increasingly realizing that their investments are much more secure and stable in the Canadian sectors. Government regulations combined with the increased restrictions on home loans, have provided Canada with the ability to respond to the US housing crisis in a proactive manner.
The affects the US meltdown is having on Canada, and the increased interest from investors in the Canadian Marketplace is an important discussion to be had with your MBN Investment Consultant. Your Consultant can be reached at 1-866-955-9662.
MBN Mortgage
September 18, 2008
