The Irish Independent reports that Taoiseach Brian Cowen last night left the door open for property and carbon taxes after confirming that it was not just income tax that would rise.

Mr Cowen also dismissed any suggestion of problems with his health.

Aside from continuing to soften up the public on tax hikes, Mr Cowen also ruled out a national unity government.

He said the country now needs a tax system that fits the new economic circumstances.

"We had a tax system based on growth and high employment where everyone was contributing. We now, unfortunately, have 10pc unemployment and growing.

"Taxes are going to go up. I said that at the ard fheis speech. There is no doubt about that,"he said.

"Obviously income tax rates are going to go up and obviously also we have got to look at other areas where we can broaden the tax base because we have reduced tax on income," he added on 4FM's drivetime show 'McGurk On 4'.

Mr Cowen didn't rule out the introduction of a property tax or the return of rates.

"We have got to base this on ability to pay but also I've got to say that the gap is so big that everybody is going to be asked to make a contribution and those who can bear it most will have to bear it best.

"But as you say, we have built up a tax code at the moment where 40pc of our workforce are outside the tax net, where four-fifths of all taxpayers pay at a rate of 20pc,"he said.

Coalition

Mr Cowen ruled out a national unity government involving the coalition teaming up with Fine Gael and the Labour Party.

"Well I'm not going to poo-poo, but I'm not saying it's a realistic one in the present circumstances,"he said.

"We have in our parliamentary democracy a government and an opposition. It is open to an opposition to be constructive if they wish, to put forward proposals if they wish, but they have to be integrated. They have to be integrated into an overall hold which makes sense.

"And at the moment we have had a 'Coalition of Confusion' on the other side because the Labour Party has been saying that we need to be spending our way out of this problem and the Fine Gael party have been saying we've been spending too much. The bottom line for me is, you know, I've to do my job, which is to make sure that we deal with problems on the basis that we have a responsibility,"he said.

Mr Cowen said the Government needs to better communicate the message.

"I often think a part of politics is psychology too that people have to get their head to where we are actually at. And a lot of people obviously would say: this has happened so swiftly and severely, how did this happen and you have to explain that.

"When we explain that better, people will understand what needs to be done.

"But I do think people now are at that point where they recognise this is an international phenomenon."

Mr Cowen also rejected suggestions there were problems with his health, or that he wasn't up to the job.

"I'm fine. My health is good. My job is to get on with the job," he said.

The Irish Independent also reports that as few as 30 of Allied Irish Banks' clients owe the group a combined €5.4bn in house development loans.

Group chief executive Eugene Sheehy said that between 30 and 40 big names account for half the bank's €10.8bn of outstanding residential development loans -- equating to an average of between €135m and €180m each.

But he said that only "four or five" clients owe the bank more than €500m each -- much lower than the 15 top clients at Anglo Irish Bank.

The group is currently working on the assumption that it will write off between €5.95bn and €6.45bn of bad loans between 2008 and 2010, mainly as residential development loans turn sour.

But it warned loan losses could spike at €8.5bn over the period under a worst-case scenario. Mr Sheehy said yesterday he had not seen what PricewaterhouseCoopers have AIB down for under a stress-test situation as part of the consultant's state-commissioned report into the banking system.

Under the worst-case scenario, AIB could end up writing off 11.6pc of its residential loans this year and a further 8.5pc of the same type of loans in the UK. Still, it would only expect to take a charge against 0.7pc of Irish residential mortgages.

The stress test factored in the economy contracting by 7pc this year and a further 2pc in 2010, with unemployment rising to 11.6pc and, further, to 14.3pc over the period.

While AIB believes house prices will fall between 20pc and 40pc from their peak in early 2007, its stress test accounts for a 50pc decline.

Default

The bank's most pessimistic view is for Irish zoned land to fall 70pc; unzoned land, 80pc; zoned land with planning permission, 70pc, and existing office, retail and industrial buildings halving in value.

It also factors in default rates in Irish and UK property portfolios soaring to 24pc and 25pc, respectively, from the current rate of about 2pc.

Banks don't normally write off a loan in total -- they look at what they could raise by selling the collateral they hold against the borrowings.

But in its worst-case scenario, AIB knows it stands to get very little back if its property developers go belly up.

The winners in all of this are the last people who got out of the 'pyramid scheme' that was the property market before it peaked towards the end of 2006. The losers are those who bought at the top and are saddled with loans that are higher than what their house or plot of land is worth (negative equity) -- and their bankers.

There is a possibility that the banks have become too pessimistic and that some of the loans written off may be paid in the future. This would see the lenders 'write back' excessive provisions they had set aside. But no-one is betting on that.

The Irish Times says the old joke – “Apart from that, Mrs Lincoln, how did you enjoy the play?” – sprang to mind when the State’s largest bank, Allied Irish Banks (AIB), issued its annual results for 2008 yesterday.

The figures were predictably dismal: pre-tax profits fell 62 per cent; earnings dropped 68 per cent; there was a 17-fold increase in bad debts on a year earlier; and the bank made an operating loss of €121 million in its Irish operations.

This is the first time the bank has posted a loss in Ireland since the company was created in 1966.

Apart from all that, the bank said its “pre-provision” performance (before the bank wrote off €1.8 billion on bad loans), was good. Deposit growth and cost management was strong.

However, the outlook for future bad debts at the bank dominated.

AIB has written off 8 per cent of its Irish residential development loans in 2008 and expects to write off a similar percentage this year.

All told, AIB may face bad loan charges of up to €8.5 billion over three years to the end of 2010.

Impaired loans, on which the bank may have some write-offs, could rise from €3 billion, or 2.3 per cent of all loans, at the end of 2008 to €9.5 billion (5.4 per cent) in 2011 or €17.9 billion (12.2 per cent) in a stressed scenario.

AIB said that in a “pretty severe scenario” it may have to write off up to €4 billion in 2009 and €2.6 billion in 2010. However, the “charge-offs” are expected to be closer to €2.9 billion and €1.6 billion respectively in those years, based on forecasts for unemployment and economic contraction.

Stockbroker Davy expects AIB to make a loss in 2009 and 2010.

Despite a poor lending record to a collapsing property market, AIB chief executive Eugene Sheehy says he should still lead the bank.

He said he has not offered his resignation to the bank’s board, nor has he considered it.

“I see myself as an experienced banker who wants to work through this cycle,” he said, adding that he wants to “make sure” the bank can pay the 8 per cent yearly interest bill on the €3.5 billion coming from taxpayers.

Mr Sheehy also expressed some regrets: over his decision to raise the half-year dividend; over some of the bank’s lending, particularly to property developers; and that “the risk appetite was too strong”.

“The mistake was that we believed a soft landing would still give you a good chance to get out without serious damage. The fact is there hasn’t been a soft landing and there isn’t going to be one.”

Mr Sheehy said that four to five of the bank’s developer clients each owe more than €500 million, while 30-40 customers accounted for more than half this loan book.

He said there would be no need to nationalise the bank as it is “adequately capitalised”. AIB’s core tier capital ratio – the key measure used to assess a bank’s ability to absorb unexpected losses – jumps to 8.4 per cent with the Government’s €3.5 billion recapitalisation. Analysts noted with surprise that the ratio would have been 3.4 per cent – below the desired 4 per cent regulatory minimum – without taxpayers’ money.

This contradicted AIB’s stance last autumn when it repeatedly said it did not need outside capital.

“Since then there has been a dramatic change in the environment,” said Mr Sheehy. “I couldn’t have foreseen all the things that have happened.”

While he said the revelations emerging about Anglo Irish Bank have been “very trying” for AIB, “difficult” and “very troubling”, he believes that disclosure will help. “As they say in America, sunshine is the best disinfectant.”

AIB results 2008

Operating profit (before bad debts):€2.7bn (+18%)

Bad debts: €1.8bn (+1,603%)

Pretax profit: €1bn (-62 %)

Earnings per share: 66.5c (-68%)

SUMMARY

AIB managed a strong operating performance in 2008, growing deposits (notably in the bank’s capital markets division) and reducing costs. However, loan losses spiralled, primarily due to a surge in bad debts on loans to Irish developers/builders, leading to a dramatic fall in profits. No final dividend was paid; the interim payout was 30.6 cent per share

The Irish Times also reports that Denis O'Brien intends to raise $435 million (€345.8 million) through a private placement of bonds for his Digicel mobile phone group, with most of the funds to be diverted to his fledgling operations in central America.

The money is being raised by Digicel Ltd, a company incorporated in Bermuda and wholly owned by Mr O’Brien. It owns the company’s Caribbean operations, which cover 24 markets.

A total of $260 million of the money will be used to acquire an equity interest in Digicel Holdings (Central America) Ltd (DHCAL), which runs its new businesses in Honduras and Panama.

This is a sister company of the Caribbean business and is owned by Mr O’Brien and other long-standing associates and directors with Digicel. The balance will be used for “general corporate purposes” by the Caribbean concern.

It is not clear whether Mr O’Brien or his fellow shareholders in DHCAL will pocket any of the $260 million from the sale of equity. In a statement to The Irish Times, the mobile operator said: “Digicel has announced its intention to launch a $435 million bond issue. We will not be making any further comment on the deal until the process is completed.”

However, credit ratings agency Moody’s said it viewed the equity purchase by Digicel Ltd as an “effective stock buyback” from Mr O’Brien. In February 2007, Mr O’Brien acquired Digicel Ltd in a multibillion-dollar refinancing, a move that saw him net about $800 million personally.

Digicel’s other shareholders also earned big windfalls from that move. These included Cork-born businessman Leslie Buckley, Lucy Gaffney, PR executive PJ Mara, accountant Greg Sparks and Digicel executive Seamus Lynch.

Digicel’s operations in Honduras and Panama – launched late last year – require substantial cash to support the rollout of infrastructure and to incentivise customers to buy its services.

Moody’s yesterday downgraded Digicel’s outlook from positive to stable. It assigned a B1 rating to the new $435 million in senior unsecured notes to be issued, and affirmed Digicel’s “corporate family rating” at B2.

The agency upgraded its rating on Digicel’s $450 million senior unsecured notes, due in 2012, to B1 from B2. It affirmed the Caa1 rating on Digicel’s $1.4 billion in senior unsecured notes, which are due for repayment in 2015.

Founded in 2001, Digicel has operations in 31 countries in the Caribbean, central America and the Pacific Islands. It has more than 6.5 million subscribers and has invested about $3.4 million in its various operations.

Moody’s said yesterday that Ebitda-positive contributions from operations in Haiti and Trinidad Tobago had reduced Digicel’s “adjusted leverage” to about 4.5 times at the end 2008. This compares with about 10 times at recapitalisation in 2007.

Digicel recently cut its workforce by 450, or 10 per cent, in a move that cost it about $3 million. For the year to the end of March 2008, Digicel reduced its group pre-tax losses to $47.7 million compared to a deficit of $71 million a year earlier. Its revenues rose by 38 per cent to $1.56 billion, while operating profit increased sixfold to $240 million. Digicel was pushed into the red by interest payments of $296.4 million.

The Irish Examiner reports that one of the country’s biggest credit unions, with 17,000 members and assets of €100 million, has been told by the Financial Regulator that its "financial stability" is under threat and has ordered it to cease all business lending.

The Financial Regulator’s Registrar of Credit Unions, Brendan Logue, in a private and confidential letter to the board of Mitchelstown credit union, warned: "A run on members’ savings took place last year and it is clear that the credit union would have difficulty surviving a repeat of this. You advised us that no contingency plan exists to deal with any of the potential threats to the credit union and this is a matter of great concern."

When contacted by the Irish Examiner Mr Logue said: "There are some credit unions like Mitchelstown whose risk profile is higher than the average. However, these are fewer than 10 in number, out of a total of 419 in the Republic of Ireland. Consequently members should have no reason to be concerned about the safety and security of their savings or about the solvency or liquidity of their credit unions."

Mr Logue wrote to the board of the credit union, the 17th biggest in the State, on February 17, following a crisis meeting a day earlier.

Credit union chairman Kevin O’Flynn told the Irish Examiner he was not commenting on the situation as "it is an internal matter for the board".

Mr Logue told the board at the private meeting it is entering a period of potential instability. "This has arisen mainly because of the dysfunctional operation of the board over recent years and has caused a serious loss of confidence by members in the credit union." He told the credit union by letter that he is appointing an "independent inspector" to review its €35m loan book because of concerns about the administration and lending functions and the "adequacy of the provision for bad and doubtful debts".

He has identified a number of specific issues which he believes "now threaten the financial stability of the credit union". Loan arrears were rising sharply. "It is a matter of concern that at 30 September 2008, four of the top five loans were in arrears. Subsequent to that date significant new loans were advanced, three of which were in the region of €250,000... the board did not seem to be aware of the issuance of these loans," Mr Logue said it his letter.

Losses on investments of close to €65m are increasing and Mr Logue said he has been informed these could hit €4.6m by the end of the current financial year.

He said it is unlikely a dividend will be paid again this year.

Mr Logue said the appointment of a new manager "appears to have fallen into confusion, arising from disputes between directors as to the appropriate procedure to be adopted".

He directed the branch to cease all business lending and to curtail all other lending to 50% of the net increase in savings each month.

He has also directed the credit union to appoint a new manager, who is "independent of any sectional interest" and who holds a recognised accountancy qualification by March 31.

The Financial Times reports that Poland on Monday renewed its commitment to bid for rapid accession to the eurozone amid signs the financial crisis has prompted European Union leaders to consider shortening the entry process.

Warsaw’s declaration came after Sunday’s EU summit, where some leaders indicated they would think over Hungarian proposals for reducing the two-year period candidates spent in the exchange rate mechanism-2 preparing for euro entry.

Amid tense scenes, EU leaders rejected separate Hungarian plans for an eastern European banking bail-out. But the summit backed a case-by-case approach to aid while some participants suggested reviewing the time spent in the ERM-2, but not re­laxing other euro entry criteria.

The failure of the €180bn bail-out plan caused eastern European currencies to fall on Monday, led by a 2.5 per cent drop in the Hungarian forint.

While Poland, which wants to adopt the euro by 2012, might benefit from a shorter ERM-2 wait, Warsaw on Monday made clear it did not necessarily support any change in entry rules.

“We have not changed our position at all. We want to join ERM-2 in the first half of the year, if market conditions permit,”Jacek Rostowski, Poland’s finance minister, told the Financial Times.

Poland’s tough approach, which is shared by the Czech Republic, is in line with a policy of differentiating itself from the more troubled countries of the region including Hungary. Warsaw and Prague reacted coolly at the summit to both Budapest’s bail-out and ERM-2 proposals.

Mr Rostowski said:“We think a one-size-fits-all approach to the region is not right. What’s needed is differentiation. Countries should be helped according to their needs, whether they are in eastern Europe or in western Europe.”

Despite the concern about central Europe’s stability, some central European officials argue that weaker eurozone countries including Ireland and Greece are in much worse shape than Poland or the Czech Republic.

At the summit, some EU leaders indicated they were open to shortening the period spent in ERM-2. “There are requests to enter ERM-2 faster. We can look at that,” Angela Merkel, Germany’s chancellor, said.

The European Central Bank would not comment on Monday, but it is likely to demand a strict interpretation of the eurozone entry rules.

The FT also reports that in spite of the gloom surrounding the British economy, Andrew Pimblett is feeling far from depressed.

He is managing director of Street Crane, a maker of factory hoists based in Chapel-en-le-Frith, Derbyshire, which had sales last year of about £20m, of which roughly three-quarters was exported.

“We’ve been given a tremendous boost by the fall in the value of the pound,” says Mr Pimblett, who is budgeting for a 5 per cent increase in sales over the coming year.

Someone else who reckons he is benefiting from the currency shifts is Graeme Hall, managing director of Leeds-based Brandon Medical, which makes hospital lighting.

“[Our] UK business is holding up well, probably because all the imported products our National Health Service usually buys are suddenly costing a lot more [owing to the fall in sterling],” Mr Hall says.

Such upbeat thinking is at variance with a run of recent evidence that indicates the downturn in manufacturing, already severe, is getting worse.

But it fits in with notions that during an eventual recovery the economy could “rebalance”, with more of a focus towards manufacturing – in spite of this sector’s current pain.

In 2007, manufacturing accounted for less than 13 per cent of UK value-added output at current prices, compared with nearly 33 per cent in 1970 and a peak of close to 40 per cent in the 1950s. In both Japan and Germany the comparable figure was 22 per cent in 2007.

Mark Abrahams, chief executive of Fenner, a company in Hull that makes conveyor belts, says that in the next few years manufacturing could benefit through attracting some of the talent that in the recent past might have headed to the financial services sector.

“In fields such as investment banking a lot of the glamour has worn off, and manufacturers could be among those to benefit [in terms of recruitment],” says Mr Abrahams.

However, there is controversy over how much the government should try to assist a “rebalancing” through the kind of “industrial activism” that Lord Mandelson, the business secretary, has proposed.

Calls by industry leaders for the government to do more to help their battered industry have been accompanied in some cases by suggestions that ministers ought to pump money into the sector partly to safeguard Britain’s strong position in automotive engineering.

‘Britain has a competitive advantage in much of manufacturing and I’d like to see this part of the economy grow stronger’

This is a field that some believe offers broader benefits to the economy – for example, through training people in skills such as product design or know-how in new materials that could also be applied to other sectors.

Sir Kevin Smith, chief executive of GKN, one of Britain’s biggest engineering groups, says the government has a role to play in supporting those parts of manufacturing that provide high-value products – with aerospace being a case in point.

“Britain has a competitive advantage in much of manufacturing and I’d like to see this part of the economy grow stronger [as a proportion of GDP],”Sir Kevin says.

GKN’s recent £136m acquisition of a wing-parts factory at Filton near Bristol, which will turn out new components for Airbus airliners using novel technology based on composite materials, is being helped by a £60m repayable loan from the government.

Sir Kevin admits the conditions surrounding the loan are easier than if the money was from a bank.

But he says support of this sort in the UK is justified both because it helps industries that will “provide a lot of value to the economy” and also because similar schemes to help high-tech industries are available in other countries.

However, some economists are uneasy about the notion that the government should regard manufacturing as something special.

Tim Congdon, founder of the Lombard Street Research consultancy, and a former government adviser, says many areas of services are “just as good” as manufacturing in terms of creating wealth.

Richard Jeffrey, chief investment officer at Cazenove Capital, an investment group, says government ministers should try to ensure Britain is strong in a range of industries, including the higher-value parts of manufacturing, but should not single out particular sectors.

“If this doesn’t happen, there’s a danger that Britain could introduce rigidities into the economy that could end up having a negative effect.”

The New York Times reports that fears that the world’s economies are even weaker than had been thought ricocheted around the globe on Monday as investors from Hong Kong to London to New York bailed out ofstocks.

Losses cascaded from one market to the next as concern spread that government efforts had not been enough to stabilize troubled financial institutions or broader economies.

The losses were bad everywhere but especially severe in Europe, where an emergency meeting over the weekend ended in bickering and the rejection of a bailout plea from Hungary.

In the United States, the Dow Jones industrial average fell below 7,000 for the first time since 1997 as investors reacted to reports that construction and industrial activity had continued to decline and to a $61.7 billion loss posted by the insurance giant, the American International Group. It was the largest quarterly loss ever for a company.

In Britain, the major stock market index lost 5.3 percent, and the performance of the major Italian index was worse, declining 6 percent. With the dollar also gaining, the losses were even greater for international investors in those markets.

In the United States, the Dow fell 299.64 points, or 4.24 percent, to 6,763.29, while the Standard & Poor’s 500-stock index fell 34.27 points, or 4.66 percent, to 700.82. The Nasdaq composite ended 54.99 points, or 3.99 percent, lower, at 1,322.85.

Crude oil settled at $40.15 a barrel, down $4.61.

“It’s pretty despondent everywhere,” said Dwyfor Evans, a strategist at State Street Global Markets in Hong Kong. “O.K., there are signs that some of the leading indicators have stabilized to some extent, but it’s at a very, very low level, and we’re not seeing corporate investment picking up, or consumers starting to spend again — in other words, the traditional mechanisms by which economies come out of a recession are absent at this time.”

Hopes that the American economy, which led the world into recession, might lead it back out this year have been fading.

Last weekend, Warren E. Buffett, the chairman of Berkshire Hathaway, wrote in his company’s annual report that “the economy will be in shambles, throughout 2009, and, for that matter, probably well beyond.”

As if to emphasize the problems, the Institute for Supply Management reported that companies in Britain, France, Germany, Italy, and the United States said business was getting much worse, especially in terms of jobs.

Paul Dales, an economist with Capital Economics, pointed to the survey in forecasting that the February employment report will show a decline of 785,000 jobs when it is released on Friday. If so, it would be the largest one-month decline in employment in nearly 60 years.

Last week, the United States revised its estimate of fourth quarter gross domestic product to show a decline at an annual rate of 6.2 percent, the worst in more than a quarter century. On Monday in reporting that construction activity fell sharply in January, the government also revised the December figure lower.

“That change could move the fourth quarter figure down to a 7 percent decline,”said Robert Barbera, the chief economist of ITG, a research firm.

Despite the American problems, the dollar has been gaining, particularly against European currencies. The euro slipped to under $1.26, nearing a two-year low and down from a high of almost $1.60 last spring. There was a renewed flight to safety, with the 10-year Treasury bond yield falling to under 3 percent.

The continued plunge of the stock markets has stunned investors and governments. Over the six months that ended last week, the S.& P. 500 lost 43 percent of its value. There were similar declines during the Great Depression, but since then, the worst six-month performance before the current plunge was a 32 percent fall in 1974 when the world was also in recession.

While there has been speculation about international cooperation to deal with the growing financial and economic crisis, the European Union summit this weekend provided an indication that few countries were willing to risk their own taxpayers’ money to help others.

“The E.U. again has proven it is unable to manage a coordinated response to the crisis,”Commerzbank analysts wrote in a note Monday. “The problems arising in Eastern Europe will put further pressure on the euro.”

While all countries are suffering, the United States and some Western European countries still have access to loans, which has enabled them to mount large stimulus plans and bear the costs of bailing out banks.

But in some other areas, notably Eastern Europe, the value of the local currencies has plunged as economic activity has weakened. That is a perilous path in countries where the government and many homeowners took out loans in foreign currencies, seeking lower interest rates, and now find themselves owing far more than they borrowed.

Reflecting that fact, over the same six months that the American stock market fell 43 percent, most European and Asian markets did even worse when measured in dollars. The Hungarian market, for example, was off 67 percent, while the German exchange fell 48 percent.

Investors have greeted the stimulus spending plans with some hesitation in part because of signs that the financial system continues to weaken.

“We can unleash as many trillions of dollars in stimulus as we wish, but if we don’t fix the banking system, we still have a patient in cardiac arrest,”the chief strategist at Charles Schwab, Liz Ann Sonders, said.

In addition to the loss at A.I.G., HSBC, the London-based international bank, said it would close its American consumer finance business, which it took on when it acquired Household Finance in 2003, in one of the decade’s worst acquisitions. HSBC said it would raise $17 billion in new capital from shareholders. Its shares fell 19 percent, to its lowest level in a decade.

The A.I.G. loss far exceeded the previous quarterly record deficit of $44.9 billion, set by Time Warner in 2002 when it wrote down the value of AOL.

Another factor depressing investors is the dividend cuts that many companies have been forced to make. On Monday, the large regional bank PNC Financial Services Group cut its dividend 85 percent and the International Paper Company cut its by 90 percent. Last week, General Electric cut its dividend 68 percent, and JPMorgan Chase reduced its dividend 87 percent.

The surveys of businesses, which ask whether various aspects of business are getting better or worse, showed figures in the low-to-mid 30s in all countries, driven down by sharply lower employment expectations. On those surveys, a figure of 50 indicates that business is neither getting better nor worse, and figures below 40 show a sharp rate of decline.

That very plunge could augur well in the not-too-distant future, since it appears that production in many areas is running below sales as companies seek to cut costs.

“The intensity of inventory reduction is stunning,” said Tobias Levkovich, a Citigroup strategist, in a note to clients. “The depressed level of production relative to final sales argues that there is real potential for production levels to lift” in the second half of the year, he said, leading to surprisingly good profits.

For now, at least, few investors expect any such good news. The S.&. P 500 fell 18.6 percent in the first two months of 2009, even before Monday’s fall. That was its worst start, exceeding the 18.2 percent fall recorded in the first two months of 1933, another year when a new president took office during an economic and financial crisis. In 1933, the stock market soon turned, and nearly doubled over 12 months.

The S.& P. 500 has now fallen below, and the Dow is close to, the levels that prevailed on Dec. 5, 1996, when Alan Greenspan, then the chairman of the Federal Reserve, inquired in a speech,“How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”

It was a question that has been answered over the last 17 months. During that period, the Dow has fallen 52.3 percent, a larger percentage decline than in any bear market since the Great Depression, but nowhere near the 89 percent collapse that took less than three years to complete after the 1929 high.

The NYT also reports that by easing the terms of its $150 billion rescue package for the American International Group, the government is trying to buy time for the financial conglomerate to slim down and reinvent itself as a simple property and casualty insurer, with a new name, new faces in the boardroom and perhaps an initial public offering in its future.

The government will meanwhile take a preferred stake in the company’s crown assets in its fourth attempt to stanch the flow of problems from the insurance giant. The worldwide life insurance division and the Asian insurance operations are being taken off the block, because they are too hard to sell for a reasonable price in the current market and are essentially being used to repay expensive government loans.

The company said Monday that it would create a new holding company, called A.I.U. Holdings, and install its domestic and foreign property and casualty insurance businesses there — with more than 44,000 employees and customers in 130 countries.

That company will be run by senior A.I.G. insurance executives, and its name comes from an existing A.I.G. business, American International Underwriters.

But the goal is to break this new property insurer free of A.I.G. and its many complications. “A.I.G.’s conglomerate structure is too complicated, unwieldy and opaque,” said Edward Liddy, who was brought in as chief executive by the government last fall when the conglomerate nearly collapsed. While announcing the details of the latest government package and the company’s fourth-quarter loss of $61 billion, he emphasized that the company does not need cash.

But to satisfy the government loans, he has been trying to sell divisions, a fact made harder because of A.I.G.’s opaque structure.

Mr. Liddy also took a jab at A.I.G.’s former chief executive, Maurice R. Greenberg, saying he was the one who oversaw A.I.G.’s foray into derivatives. That business “has literally brought us to our knees,” he said on Bloomberg television.

Mr. Greenberg, known as Hank, fired back with a lawsuit against A.I.G., which he accused of securities fraud.

Mr. Liddy predicted the sales would go more smoothly and profitably once A.I.G. was carved up into comprehensible parts, and said there might be a public offering for the reorganized property and casualty business in nine months to a year.

Joe Paduda, a former A.I.G. employee who is now principal in the insurance consulting firm of Health Strategy Associates, agreed that the “black box” aspect of A.I.G. was putting off prospective buyers. “They don’t want to buy anything they don’t think they really understand thoroughly,” he said.

Within its web, different operating companies could affect one another’s performance in unpredictable ways, he said.

A.I.G.’s other divisions have an even cloudier future. Its global life insurance division and its Asian insurance operations are being shifted into two special-purpose entities, where they will help satisfy debts to the Federal Reserve Bank of New York. They may eventually be sold, too, but no one at the company was predicting when.

Moody’sInvestor Service reacted to these developments by holding A.I.G.’s credit rating steady, as well as the ratings of its property and casualty units. But it downgraded the debt of certain divisions, including its life insurers.

“This is not a good option, but it’s the least worse of a lot of bad options,” Mr. Paduda said.

In a conference call with securities analysts Monday, Mr. Liddy said A.I.G. had been trying without success to sell the Asian insurer, the American International Assurance Company or A.I.A., and the worldwide life insurer, called Alico. Other insurance companies have made offers, but with the life insurance industry in a major downturn, Mr. Liddy said prospective buyers could not reach far into their pockets.

Some observers speculated that competitors had been trying to buy its businesses on the cheap.

“A.I.G. is down, and they’re kicking them as hard as they can,”Mr. Paduda said. “A.I.G. is not very well liked in the insurance business.” He said that back in its glory days the company had a reputation for aggressively poaching its rivals’ customers.

By putting the stock of Asian and worldwide life insurance units into the new special-purpose entities, the company said it was accomplishing two things: taking them off the auction block until the industry recovered and better offers came forward, and paying back a portion of the roughly $38 billion drawn down from its total $60 billion lending commitment from the Fed.

The company said it had also reached an agreement to give the Fed a stake in the future cash flows of its domestic life insurance businesses. After taking these steps to effectively pay back the $38 billion loan, A.I.G. will have a much smaller credit facility in place from the Fed, which will extend $25 billion as needed.

The Fed loan has been one of the most expensive parts of the government’s rescue package, and by satisfying part of it with the two companies’ stock, A.I.G. will be able to use less expensive forms of government support.

It still has a $40 billion capital infusion that it received from the Treasury in November, which was cheaper than the Fed loan because it was secured with preferred stock. Now the terms are even better, as the Treasury has agreed to drop the 10 percent dividend on the stock.

In addition, A.I.G. will get a new commitment from the Treasury of $30 billion, in exchange for a second block of preferred stock with no dividend. The company said it did not intend to use the new commitment immediately.

Mr. Liddy said the goal was to replace borrowings from the federal government with equity wherever possible. Such a debt-to-equity structure is intended to decrease the financial burden and reduce the prospect of credit downgrades.

Other divisions, like the airplane leasing subsidiary, are still expected to be sold separately, and depending on how the sales turn out some of those proceeds could help satisfy the Fed.

Mr. Liddy said A.I.G.’s need for emergency cash from the government had stopped growing in recent weeks and had stabilized at about $38 billion. He said the vast majority of that sum had simply passed through the company and gone to other financial institutions, where A.I.G. had to settle contractual obligations, many of them involving derivatives. A lesser amount from the government had been used to bolster the capital of its own operating units.

A.I.G.’s needs for cash could suddenly grow, however. If conditions worsen, perhaps because customers and employees flee, or if asset sales take too long and their prices fall farther, then the ratings agencies might still downgrade the company.

In the event of a steep downgrade, A.I.G. might have to come up with $8 billion to $11 billion in cash to provide collateral to its counterparties, Mr. Liddy said in response to a question.