AIG's Demise Means Your Transit System May Shut Down
Lyndon LaRouche
Nov. 17, 2008 (LPAC)--Some 30 metropolitan transit systems across the nation are at risk of shutdown, due to the collapse of mega-insurer AIG. Between 1988 and 2003, transit agencies went to "the market" to get financing to build their transit systems. The deals required a triple-A rated insurer to guarantee the transaction, and AIG was the prime guarantor on between $1.5 billion to $4 billion. So when AIG lost its triple-A rating recently, all the deals it had guaranteed were put into "technical default."
Vulture bankers have begun to exercise their option to demand immediate repayment of their investments, which could put many of these companies out of business--which means no more bus and subway service for you, John Q. Public.
Lyndon LaRouche today noted that this is similar to the way that the collapse of letters of credit is bringing world shipping to halt. The meltdown of the financial system is bringing the physical economy crashing down with it.
For example the Belgian bank, KBC Group, went to court to collect $43 million from the Washington, D.C. Metro. If a federal judge hadn't forced a compromise agreement between Metro and the bank, Metro would have had to sharply cut back services. Metro's general manager John Catoe said the judge's compromise "sends a strong message to other banks that they cannot make a financial windfall at the expense of transit riders." But Metro has 14 other such lease agreements and several banks have threatened to put the agency into default unless it finds new high-rated insurance coverage of the deals.
Transit agency executives from across the country are expected in DC this week to beg for some of those Paulson bailout bucks.