U.S. Announces $85 Billion Bailout Of AIG

Federal Reserve Makes Emergency Loan To Keep Global Insurance Giant Afloat, Avoid Deepening Financial Crisis

(CBS/AP)  In a bid to save financial markets and the economy from further turmoil, the U.S. government agreed Tuesday to provide an $85 billion emergency loan to rescue the huge insurer AIG.

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.

[cattlekate]

Dear Lord. So could someone tell me why certain companies are bailed out with my tax dollars and others are not? I have Lehman Bros in my 401K - and they are not bailed out? How was I supposed to know this ahoed of time? I lost several thousand in Montana Power, and no one told me up front to bail.

[tryhonesty]

If this was any other country, this would be called Communist Socialism. Soon, brought to you by a RepubliCON near you, the great Soviet America...Pretty soon the U.S. Government will own all of the largest companies, hmmmm sounds like a history lesson...not learned by the average redneck RepubliCON. So sad, the CONs continue to run America into the ground.

[formrusmcsgt]

"The people said the Federal Reserve would receive warrants that could be exchanged for an ownership stake in the company in return for its $85 billion loan."
---

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.

[brianbwb-2009]

Friday, it was "no bailout", now it is "bailout".


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.

[lorinkundert]

I hope more of you are feeling those chills running up and down your spines, ever hear of the word "Nationalization" one of the most prominent planks of Socialism?

[brianbwb-2009]

Friday, it was "no bailout", now it is "bailout".


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.

[o2brich]

Here''s one conservative who is growing concerned about all the bailouts and what that is doing to the national debt. Isn''t the growing debt part of the problem? So all these bailouts - aren''t they bandaids that leave the long term problem a little worse?

[sepa2]

wht do we need to pay for these losers?????
They are the ones who decided to get involved in bad ******* mortgages!
-----------------
Hey all the money is in senior citizens'' hand. Let us ask them to bail these gamblers ( financial institutions)

[samthetvcat]

The economy''s complex like computers - we''re all linked into the system, but if there''s a crash there''s only like two or three people who know how to fix it.

I guess we just have to trust that they''re the experts and that they''re doing the best they can . . .

[sepa2]

Todd Palin is a cool guy.
--------------------
No wonder he is in Alaska

[spadeisspade]

So...that makes the taxpayers like, what 150% responsible for bank greed now? USA, USA, USA! Even Korea wouldn''t touch Bearh-Stearns! This is Henny Penny reporting...

[alphaa10-2009]

"Too big to fail" runs the mantra around Washington, as congress rushes to saddle taxpayers with the misdeeds of large financial players like AIG.

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.

[jumkey]

Where has President Stupid been in all of this? Hiding in his closet?

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.

[hazelknows]

The Keating Five were five United States Senators accused of corruption in 1989, igniting a major political scandal as part of the larger Savings and Loan crisis of the late 1980s and early 1990s. The five senators, Alan Cranston (D-CA), Dennis DeConcini (D-AZ), John Glenn (D-OH), John McCain (R-AZ), and Donald W. Riegle (D-MI), were accused of improperly aiding Charles H. Keating, Jr., chairman of the failed Lincoln Savings and Loan Association, which was the target of an investigation by the Federal Home Loan Bank Board (FHLBB).

Perhaps this is McBush''s experience in this matter.

[eclecticman1]

Obama is 100% right. It is the GOP''s distaste for regulations and its unquestioning love for an unfettered market that has got us in this mess. Businesses need security, and they don''t get it in cowboy land.

[culturechang]

Wow, you would think the constitution provided some clause for the protection and welfare of corporations. Funny that it does not. Why doesn''t a federal judge nix all this. This is not constitutional nor what the poeple want.

[martin9p2]

I wish I could say Bush is the one who killed Wall Street, but I concede he''s not smart enough to have done it. It was the business-friendly (working person hostile) attitude of GOP, of which McCain is guilty by mere ... acquiescence with every frickin thing that Bush put over on us.

[vancouverboo]

Socialism for The Rich. Socialism for The Poor. Taxation for The Middle Class. Capitalism, American Style.

[gwjackie]

Every time this comes about there is a dam republican in the whitehouse i am sick of this shi!

[cattiej]

Here we go, right down the road to another Great Depression. Please, will someone or some organization with an ounce of decency, impeach some of these terrible members of Congress. Throw the bums out!

[cattiej]

Does anyone know if our U.S. Government borrowed this 85 billion dollars for AIG from China??
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??

[staplesla]

Why do we keep bailing out all of these companies?

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.

[breatheout]

The Republicans give big business free reign - they don''t want any government interference. But the greedy rich guys know where to go when they want a bail out don''t they? And guess who pays for it, of course, the middle class taxpayer who doesn''t have a bevy of lawyers to find loopholes for them when they file their taxes.

[lemonskink]

It''s all psychological.

[stn_sage]

Is this similar to the GOP loan to Iraq for the Iraqi War?! We ALL know how much they''ve paid back out of their oil revenues, don''t WE?! Zip! Zilch! Nada! Zero!

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!

[stn_sage]

This administration has damaged this economy ROYALLY!

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!

[kittykatty2]

fenner, you are a phuckwit. How in the hell did Dems lay the scenario for the subprime loan fiasco? It was greedy freaking republicans at the top who dangled those rotten phucking tomatoes in front of people whose only crime was to want to have a piece of the "American dream." You are talking out of a hole in your azz. Please, go drink some bleach and disappear. You''re an idiot.

[whitemale08]

Republicans are the biggest believers in Welfare, they will defend it to the death for Wall Street.

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.

[whitemale08]

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!!!

[misands]

The time financial collapse draws nearer as the world prepares to enter a new era. Out of the ashes of the impending economic meltdown will arise a new world power - China. Do not blame President Bush as this is a fate the American people have choosen for themselves and the world.

[stn_sage]

I propose emergency legislation to NATIONALIZE the banking industry (or at least investment firms)! It''s the only way to stop the steady stream of bankruptcy filings and bailouts!

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''!

[whitemale08]

BRING ON THE AMERO!!!

[barbaraf4]

If AIG only needs $40 million to bail out, why is our government giving them $85 billion?

[stn_sage]

Hey, the GOP, and big-time Republican earners ought to cover these loans as they got the benefit of HUGE tax breaks---even if it means they have to sell the new Mercedes!

[stn_sage]

SO---let me guess, Congress! Are you guys STILL planning to make Bush''s huge tax cuts to the wealthy permanent in spite of ALL these generous BAILOUTS!?

Do you have the unmitigated NERVE to do that?!

It''ll cost you your jobs!

[egresor]

here here !

====================

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

[stn_sage]

LAHCOOCAHRAHCHA! LAHCOOCAHRAHCHA! A-meri-ca is going down the toilet! Everybody! SING IT!

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?!

[shanev137]

"Bailout Bush" strikes again.

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.

[stn_sage]

Posted by stn_sage

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
----------------
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!

[donlb-2009]

Please remember that there is a precedent for the AIG bailout. The precedent occurred about 20 years ago when the Fed bought Illinois Continental Bank, at the time the 7th largest bank in the U.S. The issue for the working class is that if the govt did not bailout AIG, tens of thousands of people would have lost their jobs, and their homes. This is not a justification for the bailout, but rather it is sadly enough the responsible thing to do.

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.

[babooph]

Endless socialism for the rich-more payments from the middle class to prop up the trust fund babies of the future-a propaganda system pointing at the derelict daining the worker,when one idle trust fund baby needs 100 workers to keep him in a 5 star hotel in the med!!Easier for the worker to buy the drunk some mad dog.

[egresor]

what was called "strategic deficits" in reagan/bush time is now coming to pass. i read an interview of a rep. that listed all the possible thing that had to be cut by the next president, but at least reagan had common sense and raised taxes the highest in history to correct the damage.

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!

[shanev137]

It is the lack of regulation that got us into this mess, and not the presence or regulation.

--------


You are right, but unfortunately 90% of Americans are too dumb to figure that out.

[eddom949]

Not acceptable. 85 Million dollars from taxpayers, to AIG, for what assets and collateral? By whom of the elected officials? Overseen by whom? Accounted according to what standards? And Fannie May, and Sallie May, and the list goes on and on...

[closethippy1]

SUBTITLE FROM ARTICLE ABOVE:

"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.

[donlb-2009]

It is socialism for the rich and capitalism for the poor. If small business owner goes belly up, does the govt bail them out??? NO WAY. Does the govt bailout the rich?? YOU BET. Where is the equity and justice in this behavior?? NOT THERE.

[stn_sage]

The Federal Reserve needs to be brought into receivership or conservatorship for bankruptcy re-organization by Congress.

Posted by whitemale08 at 11:15 PM : Sep 16, 2008
---------------------
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!

[dewain4]

Insurance companies traditionally like to reduce moral hazard, which is the increased likelihood of insured individuals to engage in risky behavior. This and other recent bailouts will increase moral hazard, as companies will take more risk, and large investors will encorange riskier behavior, since they know that Uncle Sam can bail them out. Moreover, the ill-defined reasoning behind bailing out AIG and Bear Stearns but not Lehman will encourage more failing companies (e.g., auto makers) to seek government help.

[stn_sage]

Posted by wjksea at 11:48 PM : Sep 16, 2008
------------------
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!

[closethippy1]

what was called "strategic deficits" in reagan/bush time is now coming to pass. i read an interview of a rep. that listed all the possible thing that had to be cut by the next president, but at least reagan had common sense and raised taxes the highest in history to correct the damage.
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.