Finance and Economic

A great earthquake has rumbled through the financial markets, and no one knows for certain when the aftershocks will subside. But it’s not too early to check your foundation.

This advice holds especially true for retired investors who have been depending on their portfolios to supplement outside income sources, such as Social Security and/or pensions. If you have been drawing only interest and dividends from your investments, you might be in reasonably good shape, especially if you’ve escaped bond defaults and dividend cuts. But for a much larger, less fortunate group of retirees — those who need to draw from both income and principal to pay the bills — the foundation almost certainly is weaker now, and possibly even crumbling.

Assume, for example, that you retired last year with a nest egg of a million dollars, and that you have been drawing down $50,000 a year to live on. That’s a 5 percent withdrawal rate, slightly higher than what many financial planners consider sustainable, but still reasonable for a balanced, diversified portfolio.

With a new year under way, you still need $50,000 from your investments (perhaps more to keep up with rising costs), but in recalculating your withdrawal rate you make an alarming discovery: The bear market has reduced the value of your balanced, diversified portfolio to $700,000. Now, instead of the original 5 percent, you are consuming more than 7 percent of your life’s savings each year.

The decision you now face is what to do about it. I see at least four options:

Sell out your portfolio: Find a 7 percent investment and lock it in. There are fixed-income investments that pay 7 percent today, but they don’t come with government guarantees. And while (barring default) the income shouldn’t go down, it won’t go up, either. Fixing your retirement income in a world of rising costs can be very problematic depending on your age.

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Invest more aggressively: Taking more risk might lead to higher returns over time, allowing you to sustain a higher withdrawal rate, at least in theory no fax cash advance. But the more risk you take on, the more susceptible you are to the next market downturn. Another year like 2008 could push your withdrawal rate into double digits, turning a difficult situation into one that’s practically impossible.

Annuitize: You can exchange your nest egg with an insurance company for a promise of annual payments for life or a specified time period. This could lessen the risk of running out of income, but it also limits investment and income flexibility.

Stay the course, with adjustments: Depending on how much the current market environment has damaged your financial foundation, you might be able to recover with some less drastic moves. Instead of abandoning a well-constructed investment program, consider rebalancing your portfolio, which at this point probably involves moving assets from the fixed-income side over to the equity side. You also can reduce your withdrawal rate simply by drawing less money from your portfolio, if only temporarily. We all have discretionary expenses that can be reduced, postponed or eliminated. Spending less means preserving capital and purchasing power, the name of the game in retirement.

Desperate times don’t always call for desperate measures, especially when it comes to investing in retirement. But times like these do demand increased vigilance and some creativity. Start with what you know. Do the math. Adapt to new circumstances, and gain wisdom from this experience.

< Mike Brown is a licensed investment broker and a certified financial planner. He is the First Vice President, Investments for UBS Financial Services Inc. He also is the host of "KMOX Money Show" (1120 AM).

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As the U.S. government nears a deal to save General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz), a debate rages over whether Chief Executive Rick Wagoner’s job should be spared in the bailout or its most visible symbol of shared sacrifice.

With pressure mounting on Wagoner to step aside, GM on Tuesday asked its white-collar employees to add their names to a petition of support to be forwarded to the U.S. Senate.

U.S. Sen. Christopher Dodd, a Connecticut Democrat, touched off the latest controversy over Wagoner’s role at the top U.S. automaker when he said on Sunday Wagoner should step aside as Congress weighs a $15 billion industry rescue.

But with the steady backing of GM’s board, Wagoner has faced down previous threats to his leadership, including one in early 2006 as GM’s sales began to sputter and losses mounted.

Now, with GM at the brink of collapse, Wagoner’s allies have rallied to his defense and argue switching management now would risk deepening the crisis for a fragile industry.

Lee Iacocca, made famous as the CEO who steered Chrysler through a turnaround on the strength of $1.5 billion in federal loans in the early 1980s, endorsed Wagoner and his peers at Chrysler LLC and Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) in a statement on Tuesday.

“They’re by far the best shot we have for success. I say give them their marching orders and then let them march. They’re the right people to get the job done,” Iacocca said.

Tim Leuliette, chief executive of auto supply firm Dura Automotive Systems, said calls for management changes could make a bad situation worse.

“The refueling plane is poised to link up mid-air and give them jet fuel, but the guys on the ground are calling for a change in pilots before the planes link up,” he said car insurance quotes.

CRITICS LINE UP

Critics, including governance experts, are unmoved by defenses of Wagoner, Detroit’s longest-serving CEO, who ascended to the top spot at GM in 2000.

Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) CEO Alan Mulally joined that company in 2006 from Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz). Bob Nardelli, controversial for a $210 million severance package from the top job at Home Depot (HD.N: Quote, Profile, Research, Stock Buzz), was named Chrysler CEO in 2007.

“I just find it very perplexing,” said Jonathan Macey, a Yale law professor who has studied the failures of corporate boards. “Clearly, changes have to be made in these auto companies to make them competitive. It’s also clear that Wagoner’s not the right person for the job.”

Others see GM’s slide toward failure under Wagoner’s tenure as sufficient grounds to oust him and to shake up a complacent board that has failed in its role as watchdog. Eight of the 13 directors on GM’s board have served with Wagoner since 2003.

“I think the removal of the CEO has to be part of the picture,” said David Allon, portfolio manager at Firstrust Financial Resources in Philadelphia, who owns GM preferred stock. “I think the board has to recognize that Wagoner is in a self-preservation mentality.” 

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Sprint Nextel Corp plans to cut costs and use cash to pay back its $3 billion of debt due in 2009 and 2010, rather than raise new financing in tight capital markets, its finance chief said on Monday.

Chief Financial Officer Bob Brust plans to prepare a cost cutting plan for the board in January that may include layoffs, more outsourcing and a reduction in network expansion plans.

“The main focus for 2009 is cash, keeping the company completely liquid in this economy,” Brust told Reuters. “We’re going to carefully look at the cost structure …. Everything’s on the table.”

He said that Sprint, which has already been offering buyouts to employees, could cut jobs, eliminate expensive contractors, and outsource some information technology functions.

While the company will continue spending to maintain its network quality, it would likely hold back on any expansion until the economy starts to improve, Brust said.

“You can always postpone things until after the storm passes,” said Brust.

But he said the company would not be looking to sell assets because it would be difficult to find a buyer in the current credit squeeze.

SAVING

Brust took over as CFO in May after previous CFO Paul Saleh left in a management reshuffle a few months before. The No. 3 U.S. wireless service has been suffering from such losses because of weak network capacity and poor customer service since its 2005 purchase of Nextel Communications fast pay day loans.

The company has $600 million of debt due to be paid in May 2009 and another $2.4 billion in 2010, but it plans to avoid requiring new capital in the next two years, Brust said.

As well as paying down debt, he said the company, which has about $4 billion in cash, also needs to reallocate some savings to boost advertising and other efforts aimed at stemming customer losses.

While Chief Executive Dan Hesse will make the ultimate decision on such efforts, Brust said he would advise that Sprint not use cellphone service price cuts as part of its efforts to help retain users or attract new ones.

Brust said Sprint’s outlook was unchanged from November 7 even as the U.S. economic situation has deteriorated significantly.

“So far on the wireless side there’s been no mass disruption I can see,” he said. “So far we’re where we were when we did the announcement in November …. We’ve seen pressure from the recession but nothing crazy.”

Sprint on November 7 forecast downward pressure on average monthly revenue per user in the fourth quarter and continued pressure on postpaid subscriber numbers. However, it noted that gross customer additions would stabilize, with customer cancellations at a similar rate to that in the third quarter. 

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The devastating economic malaise gripping the United States has finally infected Canada’s job market, which shed nearly 71,000 positions in November, the largest monthly net loss in 26 years.

The higher-than-expected job losses pushed the country’s unemployment rate to 6.3 per cent, up one-tenth of a percentage point from October.

"If you needed one piece of evidence to prove that Canada has finally entered that slippery slope toward recession, this would be it," said Michael Gregory, a senior economist at BMO Capital Markets.

Canada posted a net gain of 133,000 jobs in the first 11 months of the year, compared with almost two million jobs lost in the United States over the period.

The picture was especially bleak in Ontario, Canada’s manufacturing heartland, where 66,000 jobs evaporated. Those losses drove the province’s unemployment rate to 7.1 per cent, up from 6.5 per cent the month before.

And this likely won’t be the end of gloomy unemployment reports. With Canada’s economy poised to contract, said CIBC World Markets economist Krishen Rangasamy, "things will certainly get worse before they get better." He sees the unemployment rate "creeping up steadily toward 7 per cent," with another 100,000 job losses expected over the next few months.

Manufacturing was hit particularly hard in November, with net job losses of 38,000. The sector has seen employment decline by 388,000 positions since a peak in 2002, Statistics Canada said.

In Ontario, where barely a day goes by without manufacturers announcing layoffs or plant closures, manufacturing job losses were even steeper, totalling 42,000 last month. That number is poised to rise after recent layoff announcements take effect, including 850 job cuts at two Magna auto-parts plants in the GTA, and 700 temporary layoffs announced yesterday at General Motors in Oshawa.

The dismal Ontario jobs picture "really is consistent with our thinking that Ontario is the epicentre of the impact of the U.S. slowdown in Canada," said Glen Hodgson, chief economist at the Conference Board of Canada.

Other sectors that are particularly vulnerable to U.S. fortunes, including transportation and warehousing, also showed substantial job losses, Gregory said payday loan online.

But the situation is even worse in the United States, which recorded 533,000 net job losses in November, the largest one-month decline since 1974. That pushed the U.S. unemployment rate up from 6.5 per cent to 6.7 per cent.

The Bank of Canada is expected to drop its key interest rate by half a percentage point to 1.75 per cent Tuesday as the outlook for Canada’s economy continues to weaken.

The feeble Canadian employment numbers prompted more calls for a government stimulus package, which likely will have to wait until the federal budget, which is slated for Jan. 27. Governor General Michaëlle Jean agreed to prorogue Parliament at the request of the Conservative government.

"We needed a massive stimulus package two months ago, not two months from now," said Jim Stanford, an economist with the Canadian Auto Workers union. "It’s absolutely jaw-dropping that Parliament has been closed down … when we should be moving dramatically to try to stop this crisis from getting worse."

At Queen’s Park, opposition parties said the huge jump in Ontario’s unemployment rate is proof that Premier Dalton McGuinty’s efforts to fight the economic downturn and retrain workers are a failure.

"Everyone could see this coming. Everyone knew this situation was going to get worse and worse," NDP Leader Howard Hampton said.

Economic Development Minister Michael Bryant acknowledged the jobless numbers were "brutal" but said Ontario’s effort at boosting the economy is "not intended to, nor can it, address the global economic crisis."

Hodgson said job losses in Canada probably won’t last as long as in the U.S. due to widely expected stimulus packages in both countries.

But, he said, "even with a big Obama package in the United States, the U.S. economy is going to have a really, really tough 2009. And if you’re sitting in Ontario, that translates into weak sales for whatever you do."

With files from Rob Ferguson

and the Star’s wire services

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ALGIERS–OPEC's next meeting must confirm that members have made all the oil output reductions they promised before taking any more action on output levels to prop up sagging prices, OPEC President Chakib Khelil said on Saturday.

"We will discuss another cut, whatever happens, but will there be a consensus? I cannot tell you today," Khelil said at a seminar on oil, referring to cuts agreed at an Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna last month.

Oil fell below $60 a barrel for the first time since March 2007 on Thursday, depressed by dismal projections for the world economy next year, and OPEC ministers are due to meet formally next on Dec. 17 in Oran, Algeria.

"There will be a consensus in Oran, and this consensus will depend on the application of the reduction," Khelil said.

"If everyone has applied (the cuts) and everything in terms of prices stays at the levels we have today, it's of course clear that we will probably go towards a decision to reduce," he said, adding that if the cuts had not all been implemented it would be difficult to decide further action.

Taking further action at a time when previous cuts had not all been implemented would send a bad signal to the markets, which reacted to "the reality on the ground" rather than mere words, he said cash advance usa.

Khelil said he expected prices to rise shortly, adding: "If we apply the reductions totally the probability of another cut is weaker."

Arab members of the group could discuss market developments informally on Nov. 29 in Cairo on the sidelines of a meeting of the Organization of the Arab Petroleum Exporting Countries, he said.

Oil's steep slide from a peak of more than $147 a barrel in July has already spurred OPEC to rein in supply by 1.5 million barrels per day (bpd) from Nov. 1. Some members of OPEC want to cut more.

Khelil said that in addition to the 1.5 million bpd OPEC cut, Saudi Arabia, the world's biggest exporter, was expected by itself to cut another 300,000 bpd that he said it had added to its own supply in recent months.

Evidence of a worldwide economic downturn has mounted. The International Monetary Fund has predicted 2009 global economic growth of 2.2 per cent, down 0.8 percentage points from its October forecast.

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Has your latest brokerage statement got you down? Maybe it’s time to try something completely different: a $96 billion market built entirely on the certifiable absence of a colorless, odorless gas.

That would be the curious and high-growth business of carbon finance. Its primary purpose is to curb global warming by stimulating the trade of a new commodity known as a carbon-emissions reduction credit. Scoff if you like, but know this: During 2008 (through Oct. 15), the value of an index of carbon credits - which you can now purchase on the New York Stock Exchange - grew 5.4%. Can you say that about anything in your portfolio?

What’s more, almost everyone expects carbon trading to really take off once the U.S. government regulates greenhouse gases, as both presidential candidates promise to do. Of course, if Washington doesn’t act, the market could vaporize. "These are political markets, and you can’t take the politics out," says V

Asian and European leaders closed ranks on Saturday to try to bolster the confidence of shell-shocked investors fearful that the year-long global credit crunch is mutating into a worldwide recession.

Poor economic data around the world and another international barrage of corporate profit warnings and job cuts triggered a brutal sell-off in stocks from Tokyo to New York.

“The danger of a collapse (on financial markets) is far from over. Any all-clear would be wrong,” German Finance Minister Peer Steinbrueck said in an interview released on Saturday.

“We are still in a dangerous situation. I am not going to mislead anyone and say: we have got everything under control,” he told Bild am Sonntag newspaper.

The worries of political leaders were mirrored in the markets how to get a free credit report.

Seventy-nine years to the day after the 1929 crash that ushered in the Great Depression, currencies experienced extreme volatility, while oil and other commodities tumbled on fears of plummeting demand that would accompany a slowdown.

Many analysts declared that Europe was in recession after private-sector activity in the euro zone’s economy contracted at the fastest pace in at least a decade and Britain’s economy shrank 0.5 percent in the third quarter, much more than expected.

“The euro area has entered a deep recessionary spiral,” said Aurelio Maccario, chief euro zone economist at Italian bank UniCredit. 

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The Canadian dollar suffered its biggest one-day drop in almost 38 years and oil slid below $78 (U.S.) a barrel yesterday as investors continued panic selling across the board on global markets.

"The dollar is in free fall along with commodity prices," said Sal Guatieri, senior economist at BMO Capital Markets.

"It’s ongoing fear that we’re heading for a global recession, and probably a deep one," he said.

When all was said and done, the S&P/TSX composite index shaved another stunning 535.02 points to close at 9065.16 for a loss of 16 per cent this week.

The Dow Jones industrial average, down nearly 700 points at one point in trading, lost 128 points to close at 8,451.19, rounding out its worst week ever.

"This is unprecedented. We don’t know when it’s going to end," said Guatieri.

"This could be a repeat of the early 1980s. It was pretty bleak for years."

Kate Warne, Canadian market specialist at Edward Jones in St. Louis, said emotions are driving behaviour in the market.

"Typically, we don’t see this kind of fear-based selling continue day after day like we’ve seen so far, but no one knows what the catalyst will be to turn sentiment around," Warne said.

"It’s very difficult to see what will change that, but we know historically it changes quite quickly and that what you tend to see is the emotions swing in the other direction just as dramatically as it’s been on the fear side so far."

As brutal as the markets looked though, most Canadians had their eyes on the ailing loonie, which at one point plunged almost five cents – its biggest drop ever – before settling halfway back.

It closed down 2.59 cents (U.S.) to 84.69 cents. The loonie has lost 7.77 cents, or 8.4 per cent, this past week alone as the U.S. dollar strengthens and as investors continue to bail out of the market on continued fears of economic instability.

"The prospects for the global economy seem to be dwindling fast and, as a result, the prospects for commodity markets are also ebbing and that’s weighing very heavily on the dollar," said Michael Gregory, senior economist at BMO Capital Markets.

"Even China, the engine of global growth, cut interest rates this week hoping to stave off lower growth there. The prospects are looking quite dim for commodities."

And the collapse in oil markets accelerated yesterday as investors grew more pessimistic about a mushrooming global crisis.

Light, sweet crude for November delivery fell $8.63 to settle at $77.99 a barrel on the New York Mercantile Exchange.

Even gold, normally the safe haven in times of turmoil, didn’t escape unscathed, falling $27.70 to close at $855.40 in New York as investors sold the metal to cover losses in the equity markets.

With files from The Canadian Press

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WASHINGTON–House members are getting another chance to vote on a financial bailout bill that has infuriated millions of voters after the Senate added tax cuts and other sweeteners and passed it handily.

Senators advanced the much-criticized measure in a 74-25 vote late Wednesday, sending it to the other side of the Capitol for a showdown vote expected Friday. The move was calculated to win over enough dissenting House members to get the bill through and reverse Monday’s stunning defeat in the House. Party leaders there planned to press rank-and-file members Thursday for the dozen converts they believe they need.

U.S. President George W. Bush will continue lobbying, too, with the argument that businesses are having a tough time financing operations and payroll and need help. A day ahead of the House vote, Bush called business leaders to the White House on Thursday to make his case for the $700-billion package.

"The president will note how important it is to pass the financial rescue legislation to help to free up credit in our economy," said White House spokesman Tony Fratto. "These business owners know the consequences if the situation gets worse, so the crisis is urgent for these businesses.”

On another front, the head of the Federal Deposit Insurance Corporation, urged people to remain calm.

"I think overall the banking system remains very sound so that’s why I think it’s so important for everybody to keep their head," commission Chairman Sheila Bair said on C-SPAN. "What I don’t want is to see otherwise healthy institutions start to get into trouble just because of liquidity pressure … Wall Street should be taking their cue from Main Street right now. Main Street deposits are staying there.”

The bailout package was never in danger in the Senate. Senators instead played catalysts for the House, adding tax provisions popular with the left and right in a bid that House leaders hope – but cannot guarantee – will persuade enough of the House rank-and-file to switch from "nay" to "aye" on a highly contentious bill a month before Election Day.

They were especially targeting the 133 House Republicans who voted against the package.

California’s David Dreier said Thursday morning that "I hated” the initial version of the bill but that he plans to vote for it this time around.

"I was very concerned with the proposal that came forward that would have allowed golden parachutes to go forward," said Dreier, a Republican. But he said he likes the new version because "it puts into place growth-oriented tax cuts.”

"I will tell you, the American people are angy and frustrated," he said on ABC’s "Good Morning America," saying he’s been hearing messages like "the woman who said she was concerned about getting access to a student loan for her daughter.”

Rep. Marcy Kaptur, an Ohio Democrat, said on the same program that she plans to vote no.

"I will not support this legislation because it’s the wrong medicine," she said. Kaptur argued that the problem should be solved by the market itself, not through governmental intervention.

After the Senate vote, Majority Leader Harry Reid, D-Nev., said, “We’ve sent a clear message to Americans all over that we will not let this economy fail. This is not a piece of legislation for lower Manhattan. This is legislation for all America.”

The rescue package would let the government spend billions of dollars to buy bad mortgage-related securities and other devalued assets held by troubled financial institutions $1500 payday loan. If successful, advocates say, that would allow frozen credit to begin flowing again and prevent a serious recession.

To some degree, at least, House GOP opposition appeared to be easing as the Senate added $100 billion in tax breaks for businesses and the middle class, plus a provision to raise, from $100,000 to $250,000, the cap on federal deposit insurance.

House Republicans also welcomed a decision Tuesday by the Securities and Exchange Commission to ease rules that force companies to devalue assets on their balance sheets to reflect the price they can get on the market.

There were worries, though, that the tax breaks might cause some conservative-leaning Democrats who voted for the rescue Monday to abandon it because the revised version would swell the federal deficit.

"I’m concerned about that," said Rep. Steny Hoyer of Maryland, the Democratic leader.

The Senate-backed package extends several tax breaks popular with businesses. It would keep the alternative minimum tax from hitting 20 million middle-income Americans. And it would provide $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana.

Leaders in both parties, as well as private economic chiefs almost everywhere, said Congress must quickly approve some version of the bailout measure to start loans flowing and stave off a potential national economic disaster.

But critics on the right and left assailed the rescue plan, which has been panned by their constituents as a giveaway for Wall Street with little obvious benefit for ordinary Americans.

Sen. Jim DeMint, R-S.C., a leading conservative, said the step was "leading us into the pit of socialism.”

But proponents argued that the financial sector’s woes already were being felt by ordinary people in the form of unaffordable credit and underperforming retirement savings. Still, they said voters were unlikely to reward those who vote for the measure.

"There will be no balloons or bunting or parades" when the rescue becomes law, said Sen. Chris Dodd, D-Conn., the Senate Banking Committee chairman.

Tax cuts new and old are favorites for most House Republicans. Help for rural schools was aimed mainly at lawmakers in the West, while disaster aid was a top priority for lawmakers from across the Midwest and South.

Another addition, to extend the deductibility of state and local taxes for people in states without income taxes, helps Florida and Texas, among others.

Increasing the deposit insurance cap was a bid to reassure individuals and small businesses that their money would be safe in the event their banks collapsed. It was particularly geared toward small banks that fear customers will pull their money and park it in larger institutions seen as less likely to fold.

The Senate vote lacked the drama of Monday’s House vote, but it had its celebrity moments. Democratic presidential nominee Barack Obama and his GOP rival, John McCain, came off the campaign trail to vote for the package, thrilling tourists who glimpsed them in the Capitol’s corridors and drawing hordes of reporters and photographers.

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American International Group, the nation’s largest insurer, plans to unveil a restructuring plan as soon as Monday morning that will include selling off part of its business to raise desperately needed cash and boost investors’ confidence, according to published reports.

AIG has been rocked by the subprime mortgage crisis, losing more than $18 billion in the past nine months, and faces the possibility of having its credit ratings cut if it does not raise capital soon.

The company, which is a component of the benchmark Dow Jones Industrial Average, is also said to have turned to the Federal Reserve for an emergency loan.

The New York Times reported late Sunday night that the company is seeking a $40 billion bridge loan from the Federal Reserve. A source close to the firm said that if AIG does not raise cash and is downgraded by ratings agencies, it may have only 48 to 72 hours to survive.

Separately, The Wall Street Journal reported Sunday that AIG is likely to sell its annuities unit and shed its domestic auto insurance business. It may also look to dispose of its aircraft-leasing arm, International Lease Finance Corp., which has a fleet of more than 900 airplanes valued at more than $50 billion.

The aircraft unit is the largest single customer of both Boeing Co. (BA, Fortune 500) and European Aeronautic Defence & Space Co.’s Airbus.

AIG may also shift assets from its insurance company to its holding company to help the company respond to customer demands, the Journal reported. All told, these measures involve between $40 billion and $50 billion in capital raising and reallocation.

AIG spokesman Nicholas Ashooh told CNNMoney.com on Sunday: "We’re working hard on a range of options, but have not announced anything and don’t know when we will."

The ailing company, which had planned to announce a turnaround strategy on Sept. 25, is being forced to accelerate the announcement after investors fled the stock last week.

Shares fell 31% on Friday after plummeting earlier in the week. The company’s stock is down a total of 79% this year.

AIG (AIG, Fortune 500), which already raised $20 billion in fresh capital earlier this year, has been pummeled by three quarters of huge losses and writedowns. The company has reported more than $18 billion in losses in the past nine months.

Its troubles stem from its sales of credit default swaps - insurance-like contracts that guarantee against a company defaulting on its debt - and from its subprime mortgage-backed securities holdings.

AIG has written down the value of the credit default swaps by $14.7 billion, pre-tax, in the first two quarters of this year and has had to write down the value of its mortgage-backed securities as the housing market soured.

This year’s results have also included $12.2 billion in pre-tax write downs, primarily because of "severe, rapid declines" in certain mortgage-backed securities and other investments.

Credit ratings agency Standard & Poor’s warned late Friday that it might downgrade AIG’s debt, citing concerns about the company’s access to capital following its share price decline http://payday-nofax.com.

A downgrade would make it more expensive for AIG to issue debt and harder for it to regain the confidence of investors.

"We believe that AIG has sufficient capital and liquidity to meet its policy obligations and potential collateral requirements, which are significantly greater than the expected cash losses on the mortgage-related assets," said Standard & Poor’s credit analyst Rodney Clark. "However, additional market value losses will place some strain on the company’s resources."

AIG has struggled all year as the Wall Street credit crunch took its toll.

In June, the company tossed out its chief executive, Martin Sullivan, who had been charged with turning the company around after directors removed longtime CEO Hank Greenberg in 2005. Greenberg was the target of one of then-Attorney General Eliot Spitzer’s investigations.

The board named AIG chairman Robert B. Willumstad, who joined AIG in 2006 after serving as president and chief operating officer of Citigroup (C, Fortune 500), to replace Sullivan as chief executive officer.

Though AIG’s problems have been apparent for months, it is coming under fire now because of Wall Street’s increasing skittishness over Lehman Brothers, also a big player in credit default swaps, said Chip MacDonald, partner in the capital markets group at Jones Day, a law firm.

"It’s the lack of transparency and clarity about their business," MacDonald said. "In today’s environment, everyone is assuming the worst so they are forcing AIG to come out with a plan sooner rather than later."

However, McDonald noted, AIG is not in as vulnerable a position as other financial institutions because of its core insurance business. Customers cannot simply withdraw their deposits, as they can at a bank.

"It’s a little harder to make a run on an insurance company," McDonald said. 

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