U.S. Announces $85 Billion Bailout Of AIG
Federal Reserve Makes Emergency Loan To Keep Global Insurance Giant Afloat, Avoid Deepening Financial Crisis
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AIG is in a precarious position, in part, because of concerns about its credit ratings and how that would affect its portfolio of financial instruments known as credit default swaps. (AP Photo/Mark Lennihan)
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The Federal Reserve said in a statement it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.
It also could "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said.
"The president supports the agreement announced this evening by the Federal Reserve," said White House spokesman Tony Fratto. "These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy."
Treasury Secretary Henry Paulson said the administration was working closely with the Fed, the Securities and Exchange Commission and other government regulators to "enhance the stability and orderliness of our financial markets and minimize the disruption to our economy."
"I support the steps taken by the Federal Reserve tonight to assist AIG in continuing to meet its obligations, mitigate broader disruptions and at the same time protect taxpayers," Paulson said in a statement.
The Fed said in return for the loan, the government will receive a 79.9 percent equity stake in AIG.
Earlier, Fed chairman Bernanke and Paulson met with Senate Banking Committe Chairman Sen. Christopher Dodd, Senate Majority Leader Harry Reid, and House Republican leader John Boehner to brief them on the government's options.
"At the administration's request, I met this evening with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. They expressed the administration's views on the deepening economic turmoil and shared with us their latest proposals regarding AIG," Reid told reporters. "The Treasury and the Fed have promised to provide more details in the near future, which I believe must address the broader, underlying structural issues in the financial markets."
On Tuesday, shares of the insurance company swung violently as rumors of potential deals involving the government or private parties emerged and were dashed. By late Tuesday, its shares had closed down 20 percent - and another 45 percent after hours. Still, no deal emerged.
Sean Egan, president of rating company Egan Jones, would have gone bankrupt if it didn't raise at least $40 billion quickly, reports CBS News business correspondent Anthony Mason.
"Trust is so important with these securities that are being handled by the major financial institutions," he told CBS News. "And that's gone right now."
Michel Lewitt, a money manager at Harsh Capital Management, said the insurance giant could not have been allowed to go under, calling such an event "as serious a situation as this country has faced since the Great Depression."
The problems at AIG stemmed from its insurance of mortgage-backed securities and other risky debt against default. If AIG could not make good on its promise to pay back soured debt, investors feared the consequences would pose a greater threat to the U.S. financial system than this week's collapse of the investment bank Lehman Brothers.
Also on Tuesday, Barclays PLC announced a deal to buy Lehman's North American investment banking and capital markets businesses for $250 million in cash, two days after walking away from a deal to acquire the entire corporation.
The worries about AIG were triggered after Moody's Investor Service and Standard and Poor's lowered the company's credit ratings, forcing AIG to seek more money for collateral against its insurance contracts. Without that money, AIG would have defaulted on its obligations and the buyers of its insurance - such as banks and other financial companies - would have found themselves without protection against losses on the debt they hold.
"It might not just bring down other financial institutions in the U.S. It could bring down overseas financial institutions," said Timothy Canova, a professor of international economic law at Chapman University School of Law. "If Lehman Brother's failure could help trigger AIG's going down, who knows who AIG's failure could trigger next."
New York-based AIG operates insurance and financial services businesses ranging from property, casualty, auto and life insurance to annuity and investment services. Those traditional insurance operations are considered healthy and the National Association of Insurance Commissioners said "they are solvent and have the capability to pay claims."
Despite the fate of AIG looming over investors, Wall Street ended another tumultuous session with a sizable gain Tuesday, partly recovering from its worst sell-off in years after the Federal Reserve said it was keeping interest rates steady.
© MMVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.



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I have to laugh.
I''ve been watching neocons for months now go on about Obama wanting to nationalize companies.
Yet they are dead silent when a neocon adminisatration nationalizes Freddie Mac, Fannie Mae, and now, AIG.
Hilarious.
I knew when it was reported that Paulsen said he was against bailouts with public money, that that was exactly what was going to happen.
These people can be counted upon to tell a lie exactly 180 degrees from the truth.
OK, we should now own 85 billion worth of AIG, and as such have a right to be represented on the board of directors.
My vote? Liquidate the company, recover as much as we can, and require the return of the salaries of all senior management, starting from the date they approved being involved in subprime, an area they had no business in.
I knew when it was reported that Paulsen said he was against bailouts with public money, that that was exactly what was going to happen.
These people can be counted upon to tell a lie exactly 180 degrees from the truth.
OK, we should now own 85 billion worth of AIG, and as such have a right to be represented on the board of directors.
My vote? Liquidate the company, recover as much as we can, and require the return of the salaries of all senior management, starting from the date they approved being involved in subprime, an area they had no business in.
They are the ones who decided to get involved in bad ******* mortgages!
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Hey all the money is in senior citizens'' hand. Let us ask them to bail these gamblers ( financial institutions)
I guess we just have to trust that they''re the experts and that they''re doing the best they can . . .
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No wonder he is in Alaska
Do we hear any GOP bozos protesting in the background, "Unfair to taxpayers! Big government stay out of the private sector! Financial players are adults, and should take their lumps, along with their profits!"
The hypocrisy of their stance is beyond doubt-- when skies are blue, federal regulators should take a summer vacation. When skies are stormy, my, how quickly they can reach our congressmen for a bailout!
In other words, the Game in Washington is still rigged for those whom George Bush dubbed The HaveMores, "my political base".
Rest assured, the HaveMores continue to acquire more and more advantages. When Bush signs a so-called "tax cut" bill, he means most of the savings will go to the rich, not average Americans. But when Americans living on the raw edge of poverty need medical care, that instantly becomes a budget-breaker to Bush, because the money is already earmarked for the rich.
George Bush is the perfect example of the nitwit, childish conservative.
War, destroyed cites, 3000 dead civilians, economic collapse, gutted constitution.
What complete and total losers Republicans are.
Perhaps this is McBush''s experience in this matter.
When does AIG have to pay us back for this 85 Billion load?
What is going to happen to the CEO''s of AIG? Are they going to be fired or go to jail?
How many of the top dogs of AIG received millions of dollars in bonus money this year? and how much did they receive??
Let capitalism thrive and for those that engage in bad business practices let them fail.
We are going to be so far in debt by bailing everyone out and in the long run the only people that are benefiting are the executives of these companies that caused the problems in the first place.
I agree if any company like AIG failed it would be a mess but it too would pass and we would be left with the strong companies and eventually move forward with a stronger economy.
If it''s anything at all similar to the Iraq loan, this company will get the benefit (use) of the money, and the lender (public treasury) won''t see a DIME!
THIS is RepubliCON Econ 101: Rip-OFF the Public!
My advice to Dems: Just say NO! You don''t want to be complicit in this! Every time you give Bush his way you taint yourselves and lose credibility!
And, now John '' I don''t know economics'' McSame and
Sarah '' I bill the public for living at home'' Palin want the chance, too!
This country will be ''belly up'' by this time next year!
Besides the illegal Federal Reserve is bailing these companies out which is why they are illegal.
The Federal Reserve System is an illegal system who does whatever the hell it wants under the direction of British controlled Hank the Snake Paulson from Goldman Sachs.
The Federal Reserve needs to be brought into receivership or conservatorship for bankruptcy re-organization by Congress.
Republicans are disgusting little snakes!!!
Three things are clear: 1. there is MASS irresponsibility amongst banking/investment officials, 2. this government can''t cover this steady stream of failings/bailouts, and 3. if it isn''t nationalized, the public will never see a penny back of this ''loan''!
Do you have the unmitigated NERVE to do that?!
It''ll cost you your jobs!
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I heard stupid junkyard dogs like Rush Limbaugh and blow-hard bloviators like patriotism pastor Glenn Beck blame Chriss Dodd but not Republican Hank the Snake Paulson who''''s the Treasury Secretary and lobbied Dodd for authorization for these bail-outs.
Republicans are disgusting little snakes!!!
Posted by whitemale08
Geez, I better start learning the samba, rumba, and tango! IF we''re going to become a third world Latin American country, I''ll need to know the dances in order to be fashionable! Right?!
Now we know what his grande finale is for the last 6 months of his presidency.... to bailout all his rich friends with taxpayer money.
Are you considering socialism you commie? We must keep big government off the backs of those who control the purse...
Posted by wjksea at 11:29 PM : Sep 16, 2008
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Hey, idiot! YOU better look again! IT''s the wealthy that are riding on the BACK of government! They''re consolidating businesses, doing away with competition, increasing their profits, when they take a ''hit'', they get the ''help'' (their favorite Congressperson) to bail them out!
That YOU don''t see OR understand HOW IT REALLY WORKS, doesn''t surprise ME! Throw your big words like commie and socialism around, maybe you''ll impress all the other idiots, too!
What we need is more regulation and not less regualtion. If you listen to the Republican chatter, McCain and Palin want to make the country stronger by having less regulation. This is clearly double-speak. It is the lack of regulation that got us into this mess, and not the presence or regulation. So much for the circular talk express; i.e., John McCain.
bush/cheney however either are utterly incompetant or devilishly extremist. you decide. all i know is the represenative laid out exactly what faces government in the future. what will be cut? something has to be.
to damage the economy to force cutbacks like republicans say they want. say but greed is so pervasive in the party leaders (not the common folks) that it''s mostly smokescreen.
tighten your belts cause it''s a bumpy ride downhill!
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You are right, but unfortunately 90% of Americans are too dumb to figure that out.
"Emergency Loan Needed To Avoid Disorderly Failure Of Insurance Giant"
QUESTION: Why does CBS feel a need to explain the reason for the bailout instead of letting the government do it?
This is another example of the media (so-called "liberal") going soft on the very institution they''re suppose to watch over.
Posted by whitemale08 at 11:15 PM : Sep 16, 2008
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That''s an excellent suggestion! IT can be part of the new plan to NATIONALIZE the banking/investment industry! GREAT! We''re on a roll, here!
Look, if our elected public officials won''t do the job, than maybe WE the public better start coming up with the ideas and taking ACTION!
The first thing we can do, is start voting some of these DO-NOTHINGS out of government!
At least they''d no longer get paid for bungling almost everything!
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GOOD! I''m glad it''s sarcasm. Because we''ve got enough
dummies who don''t understand that McCain-Palin will be almost exactly like Bush! T-R-O-U-B-L-E! And that spells trouble! We don''t need anymore!
bush/cheney however either are utterly incompetant or devilishly extremist. you decide. all i know is the represenative laid out exactly what faces government in the future. what will be cut? Something has to be
to damage the economy to force cutbacks like republicans say they want.
Posted by egresor at 11:48 PM : Sep 16, 2008
That''s exactly what I''ve been saying about Republicans since Reagan got to power: They want to spend tax money to make wars and to give it to their corporate buddies to force the US to give up public schools, welfare, health care, etc.
But instead, they''ve destroyed the economy and now the US is about to implode.
What a disaster this has become.
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