AIG (AIG) On the Brink of Collapse (Update)

UPDATE: American International (NYSE: AIG) is on the brink of collapse, with some reports suggesting the insurer has one day left to raise an enormous amount of cash or face bankruptcy. Due to its near-term liquidity pressures, AIG is said to need between $40-$75 billion quickly. Yesterday, the state of New York threw the company a lifeline, letting the company tap its subsidiaries for $20 billion, but this figure is likely not enough.

AIG and others have reached out to the Federal Reserve looking for a bridge loan to keep the company afloat, but the Fed wants a private market solution to AIG's woes. One such deal was a $75 billion loan from a consortium of banks led by JPMorgan (NYSE: JPM) and Goldman Sachs (NYSE: GS). But reports mid-day Tuesday from CNBC's David Faber suggested a private sector bailout for AIG was "dead." That leaves the Fed to come up with something or let the company fail. Other reports today suggested the Fed, bowing to pressure from AIG policyholders and New York Governor Paterson, is now considering some type of package for AIG.

Adding to AIG's woes was downgrades of the company's credit ratings by Moody's, Fitch and S&P last night. S&P cited the combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses. The downgrades will force AIG to post more collateral, further pressuring liquidity.

Mark-to-market losses from mortgage-related investments and swap exposures have placed significant pressure on AIG's ability to access capital and liquidity.

Former AIG CEO Maurice "Hank" Greenberg said allowing the company to fail would create "systemic" risk to the entire global financial system.

Shares of AIG are down another 35% today, to $3.11 per share, but off the lows.

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