Monday decided the fate of Lehman Bros. The same will happen at AIG by tomorrow. It’s the latest in a series of formerly unthinkable collapses by the biggest names on Wall Street this year.

Shares of AIG, formerly the world’s large insurer, are off another 50 percent today in the $2.50-a-share range after last night’s downgrade by credit rating agencies. Its shares have lost more than 95 percent of their value this year.

That downgrade may be the last straw. Lower ratings by Moody’s and Standard & Poor’s mean AIG’s trading partners can demand it raise more capital to fund what are now deemed riskier investments in an amount that could total more than $14.5 billion in new collateral. Counterparties could also unwind their business with AIG and demand some $5.4 billion in payment, filings with the SEC show.

Meanwhile, New York Gov. David Paterson, who offered $20 billion in loans to keep AIG afloat, told CNBC this morning the firm has one more day to come up with capital worth some $75 to $80 billion.

Former AIG Chairman and CEO Hank Greenberg told CNBC today that if it can’t arrange funding, either from the Fed or another party, it would have “no alternative” but bankruptcy.

The threat AIG poses is this: Much like Bear Stearns, it’s involved in untold amounts of transactions with the largest banks in the world. The combination of Lehman’s bankruptcy and a failure of AIG would put the largest strain ever on the complex system of derivatives contracts that have never gone through upheaval this severe. DO WE LET THESE COMPANY’S GET TO BIG????.” NO OVERSITE”.

ARE THESE BIG MORGAGE CO. BAILING OUT BECAUSE OF THE HURRICANES?????

MICKMCK707

Citigroup says:

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