Pimco's El-Erian: AIG Deal 'Not a Huge Help'
Pimco Co-CEO Mohamed El-Erian say the government bailout of American International Group "may help a little bit because it reduces uncertainty, but it's not going to be a huge help."
It is a well-constructed deal for the government, he said in a Wednesday morning interview on CNBC, with good interest rates and collateral pledges. For the company it cuts off "Armageddon scenario ... but it does so at a high cost for the company," he added. (See his full comments in the video).
But he said that he remained worried about the financial system as a whole, because the deal seemed to continue a piecemeal approach to solving the ongoing credit crisis in the financial world. "You can't be in the muddled-middle. You have to go all-in and try to stabilize the system," El-Erian said.
The AIG bailout itself "will make money for the government; the problem is it's may not stabilize the system," he said.
The bond fund chief also worried that the Federal Reserve was getting stretched to thin.
"The Fed's balance sheet is starting to get encumbered by too many things," he said.
Late Tuesday the U.S. Federal Reserve agreed to lend up to $85 billion to AIG for two years in exchange for a 79.9 percent equity stake. AIG will pay interest at a steep 8.5 percentage points above the three-month London Interbank Offered Rate, making the current rate equal to about 11.4 percent.