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AIG: Now that you own it, learn about it!

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First of all—what is AIG?

AIG is American International Group, the largest insurance company in the world. It's not just an insurance company, however; its business is divided into four divisions: general insurance, life insurance and retirement services, financial services, and asset management. It was started in 1919 in Shanghai.

How did it (almost) collapse?

Like many other banks, AIG lost a lot on its mortgages, including $18.5 billion in the past three quarters—all part of the subprime collapse. Its share price has dropped 79% this year. But bad became worse this Monday when AIG received a downgrading of its credit rating. What's a credit rating? All securities are given a rating that tells you how much risk is associated with your investment into that security. Depending on the rating, the company must have a certain percentage of money on hand. The ratings, given by agencies like S&P and Moody's, are a lot like school grades "“ A's are good (need less money on hand), B's are okay/bad (need more money on hand), and C's are junk (need even more money on hand). So S&P & Moody's downgraded AIG, which meant it needed to post $14.5 billion in collateral to support its trading contracts. AIG couldn't sell its assets off quickly enough to get that money. Seeing its impending doom, AIG tried to rally the rest of the banks (JPMorgan & Goldman) to lend them the money.

That didn't work, so the Fed had to step in order to keep it from total collapse. The Fed has promised to lend up to $85 billion to AIG.

But I thought the Fed wasn't going to bail anyone out anymore.

Well, yes, that's what they said. And they definitely stuck to their word when they let Lehman slide to its demise this weekend. However, AIG is more than just an investment firm. It's such a huge insurer (the largest in the world in terms of assets), and was such a huge player in the Credit Default Swaps (CDS) market, selling off risk to other financial players around the globe. If it collapsed, it would have shaken the global financial world.

What are Credit Default Swaps?

Okay, say I invest $10M into a bond for General Motors, but I'm now afraid that GM may see financial trouble. Instead of just selling my bond off, I can enter into a sort of insurance policy with a big bank, say AIG. I pay AIG a small premium every quarter. If GM remains fine, then AIG does nothing. If GM does see financial trouble and I lose money on my bond, AIG will pay me what I lost on my bond. Likely, this will be a lot of money, relative to the small premiums I pay. Once this happens, the contract of the "swap" terminates. This is all fine and great, except for the fact that the CDS market isn't regulated—thus I could enter into a contract with a bank that doesn't have the resources to cover the loss of my GM bond. The CDS market totals $62 trillion, in which AIG plays a central role. Since just about every bank, insurer, and institutional money manager has some sort of exposure to CDS, they all have some sort of exposure to AIG. Hence, the necessary bailout.

How does the bailout work?

Well the Fed doesn't just hand over the money when they do these bailouts. It has promised a two-year loan for up to $85B. In return, it gets a 79.9% equity stake in the company in the form of warrants (a warrant is basically a call option issued by the corporation—allowing the Fed the option of buying common stock in AIG at a specific price) called equity participant notes. Interest on their loan is at Libor (the London Interbank Offered Rate—it's basically the London equivalent of the US Federal funds interest rate, and is often used as a benchmark for short-term lending) + 8.5 percentage points. That's about 12% (now), which is very high interest.

So AIG has to make good on the loan in the two-years either through general operations (not likely) or through sale of its various assets or branches of business. AIG has about $1.1 trillion worth of assets, and the Fed plans to sell them off in an orderly manner.

Why so much money?

Though AIG only needed $14.5 billion after the credit downgrade this week, the $85B loan was designed so AIG would be left with little debt and it could take on whatever the next few quarters has in store.

Does this matter to me?

Yes—now you own part of AIG! Well, kind of. That $85 billion is comprised of your tax dollars. Yep, your tax money is now going to protect bad investments. Investments that packaged up your debt into various securities, and sold it off to another party, who sold it off to another party, who sold it off all over the world.

However, since the Fed is LENDING the $85B to the corporation (unlike the Fannie & Freddie deal) the government could make some serious money off the high interest rate. That is if, by some sort of divine intervention, the market, and thus AIG, rebounds. The Fed is making it clear that the taxpayer will only see positive effects of the bailout.

But will the taxpayer be affected?

Who knows. It may be true "“ the Fed and the Treasury may make some money off AIG due to the high interest rate, but will I ever see that money? . It's certainly a good way to assuage the public's fears.

Will the bailout work?

It should. See, certain branches of AIG are doing just fine. Its aircraft leasing business, for example, is the second largest in the world and is estimated to bring in between $7 and $10 billion.

And who's to blame?

That's for next time.

Be sure to read more of what Diana learned today here.

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Pop Culture
The Sweet Surprise Reunion Mr. Rogers Never Saw Coming
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Family Communications Inc./Getty Images

For more than 30 years, legendary children’s show host Fred Rogers used his PBS series Mister Rogers’ Neighborhood to educate his young viewers on concepts like empathy, sharing, and grief. As a result, he won just about every television award he was eligible for, some of them many times over.

Rogers was gracious in accepting each, but according to those who were close to the host, one honor in particular stood out. It was March 11, 1999, and Rogers was being inducted into the Television Academy Hall of Fame, an offshoot of the Emmy Awards. Just before being called to the stage, out came a surprise.

The man responsible for the elation on Rogers’s face was Jeff Erlanger, a 29-year-old from Madison, Wisconsin who became a quadriplegic at a young age after undergoing spinal surgery to remove a tumor. Rogers was surprised because Erlanger had appeared on his show nearly 20 years prior in 1980 to help kids understand how people with physical challenges adapt to life’s challenges. Here's his first encounter with the host:

Reunited on stage after two decades, Erlanger referred to the song, “It’s You I Like,” which the two sang during their initial meeting. “On behalf of millions of children and grown-ups,” Erlanger said, “it’s you I like.” The audience, including a visibly moved Candice Bergen, rose to their feet to give both men a standing ovation.

Following Erlanger’s death in 2007, Hedda Sharapan, an employee with Rogers’s production company, called their poignant scene “authentic” and “unscripted,” and that Rogers often pointed to it as his favorite moment from the series.

Near the end of the original segment in 1980, as Erlanger drives his wheelchair off-camera, Rogers waves goodbye and offers a departing message: “I hope you’ll come back to visit again.”

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20 Things You Might Not Have Known About Firefly
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© 2002 Twentieth Century Fox

As any diehard fan will be quick to tell you, Firefly's run was far, far too short. Despite its truncated run, the show still offers a wealth of fun facts and hidden Easter eggs. On the 15th anniversary of the series' premiere, we're looking back at the sci-fi series that kickstarted a Browncoat revolution.

1. A CIVIL WAR NOVEL INSPIRED THE FIREFLY UNIVERSE.

The Pulitzer Prize-winning novel The Killer Angels from author Michael Shaara was Joss Whedon’s inspiration for creating Firefly. It follows Union and Confederate soldiers during four days at the Battle of Gettysburg during the American Civil War. Whedon modeled the series and world on the Reconstruction Era, but set in the future.

2. ORIGINALLY, THE SERENITY CREW INCLUDED JUST FIVE MEMBERS.

When Whedon first developed Firefly, he wanted Serenity to only have five crew members. However, throughout development and casting, Whedon increased the cast from five to nine.

3. REBECCA GAYHEART WAS ORIGINALLY CAST TO PLAY INARA.

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Before Morena Baccarin was cast as Inara Serra, Rebecca Gayheart landed the role—but she was fired after one day of shooting because she lacked chemistry with the rest of the cast. Baccarin was cast two days later and started shooting that day.

4. NEIL PATRICK HARRIS WAS ALMOST DR. SIMON TAM.

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Before it went to Sean Maher, Neil Patrick Harris auditioned for the role of Dr. Simon Tam.

5. JOSS WHEDON WROTE THE THEME SONG.

Whedon wrote the lyrics and music for Firefly’s opening theme song, “The Ballad of Serenity.”

6. STAR WARS SPACECRAFT APPEAR IN FIREFLY.

Star Wars was a big influence on Whedon. Captain Malcolm Reynolds somewhat resembles Han Solo, while Whedon used the Millennium Falcon as inspiration to create Serenity. In fact, you can spot a few spacecraft from George Lucas's magnum opus on the show.

When Inara’s shuttle docks with Serenity in the pilot episode, an Imperial Shuttle can be found flying in the background. In the episode “Shindig,” you can see a Starlight Intruder as the crew lands on the planet Persephone.

7. HAN SOLO FROZEN IN CARBONITE POPS UP THROUGHOUT FIREFLY.

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Nathan Fillion is a big Han Solo fan, so the Firefly prop department made a 12-inch replica of Han Solo encased in Carbonite for the Canadian-born actor. You can see the prop in the background in a number of scenes.

8. ALIEN'S WEYLAND-YUTANI CORPORATION MADE AN APPEARANCE.

In Firefly’s pilot episode, the opening scene features the legendary Battle of Serenity Valley between the Browncoats and The Union of Allied Planets. Captain Malcolm Reynolds takes control of a cannon with a Weyland-Yutani logo inside of its display. Weyland-Yutani is the large conglomerate corporation in the Alien film franchise. (Whedon wrote Alien: Resurrection in 1997.)

9. ZAC EFRON'S ACTING DEBUT WAS ON FIREFLY.

A 13-year-old Zac Efron made his acting debut in the episode “Safe” in 2002. He played Young Simon in a flashback.

10. CAPTAIN MALCOLM REYNOLDS'S HORSE IS A WESTERN TROPE.

At its core, Firefly is a sci-fi western—and Malcolm Reynolds rides the same horse on every planet (it's named Fred).

11. FOX AIRED FIREFLY'S EPISODES OUT OF ORDER.

Fox didn’t feel Firefly’s two-hour pilot episode was strong enough to air as its first episode. Instead, “The Train Job” was broadcast first because it featured more action and excitement. The network continued to cherry-pick episodes based on broad appeal rather than story consistency, and eventually aired the pilot as the show’s final episode.

12. THE ALLIANCE'S ORIGINS ARE AMERICAN AND CHINESE.

The full name of The Alliance is The Anglo-Sino Alliance. Whedon envisioned The Alliance as a merger of American and Chinese government and corporate superpowers. The Union of Allied Planets’ flag is a blending of the American and Chinese national flags.

13. THE SERENITY LOUNGE SERVED AS AN ACTUAL LOUNGE.

Between set-ups and shots, the cast would hang out in the lounge on the Serenity set rather than trailers or green rooms.

14. INARA SERRA'S NAME IS MESOPOTAMIAN.

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Inara Serra is named after the Mesopotamian Hittite goddess, the protector of all wild animals.

15. THE CHARACTERS SWORE (JUST NOT IN ENGLISH).

The Firefly universe is a mixture of American and Chinese culture, which made it easy for writers to get around censors by having characters swear in Chinese.

16. THE UNIFORMS ARE RECYCLED FROM STARSHIP TROOPERS.

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The uniforms for Alliance officers and soldiers were the costumes from the 1997 science fiction film Starship Troopers. The same costumes were repurposed again for the Starship Troopers sequel.

17. "SUMMER!" MEANS SOMEONE MESSED UP.

Every time a cast member flubbed one of his or her lines, they would yell Summer Glau’s name. This was a running gag among the cast after Glau forgot her lines in the episode “Objects In Space.”

18. THE SERENITY SPACESHIP WAS BUILT TO SCALE.

The interior of Serenity was built entirely to scale; rooms and sections were completely contiguous. The ship’s interior was split into two stages, one for the upper deck and one for the lower. Whedon showed off the Firefly set in one long take to open the Serenity movie.

19. "THE MESSAGE" SHOULD HAVE BEEN THE SHOW'S FAREWELL.

Although “The Message” was the twelfth episode, it was the last episode filmed during Firefly’s short run. Composer Greg Edmonson wrote a piece of music for a funeral scene in the episode, which served as a final farewell to the show. Sadly, it was one of three episodes (the other two were “Trash” and “Heart of Gold”) that didn’t air during Firefly’s original broadcast run on Fox.

20. FIREFLY AND SERENITY WERE SENT TO THE INTERNATIONAL SPACE STATION.

American Astronaut Steven Ray Swanson is a big fan of Firefly, so when he was sent to the International Space Station for his first mission (STS-117) in 2007, he brought DVD copies of Firefly and its feature film Serenity aboard with him. The DVDs are now a permanent part of the space station’s library.

This post originally appeared in 2014.

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