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.

[BUncensored]

If you want my Raymond's Taint I think that AIG and others have taken enough of the taxpayers money. They clearly don't understand the meaning of cutting back or how to not be greedy. Down with AIG!

[jab232]

Finally, I''m beginning to see some media mention of the Gramm-Leach-Bliley Act which took away banking regulations in place since 1929. The act was co-sponsored by McCain''s economic adviser in hiding, Phil Gramm. McCain voted for the act. Then later, as a banking lobbyist, Gramm torpedoed attempts to pass reasonable regulation. Now McCain says he is for the very regulations he voted against his whole time in the Senate. If you want the foxes in charge of the economic hen house, elect McCain-Palin.

[jab232]

Finally, I''m beginning to see some media mention of the Gramm-Leach-Bliley Act which took away banking regulations in place since 1929. The act was co-sponsored by McCain''s economic adviser in hiding, Phil Gramm. McCain voted for the act. Then later, as a banking lobbyist, Gramm torpedoed attempts to pass reasonable regulation. Now McCain says he is for the very regulations he voted against his whole time in the Senate. If you want the foxes in charge of the economic hen house, elect McCain-Palin.

[truth843792]

The Federal Reserve Bank is not the US Government. It is a private corporation comprising of 12 regional banks. The decisions of this private corporation are made internally, but... and I repeat BUT, they do answer to Congress. US Taxpayers are not involved with this bailout. The Federal Reserve prints money out of thin air, as direct by Congress, if and only if, the money is backed by labor or other securities. So, the labor and/or securities backing this loan is the labor and/or securities of AIG. NOT THE US TAXPAYER!!!!!!

[freemanswish]

Common, fire the CEO and these greedy executives and save some money before the GOVment takes over.

We need to understand this was due to pure GREED in the housing market!!

[prophetjohn]

To deal just with every man is the Creator''s requirement if we are to receive His help during our current cycle of crises. There was a time when America championed the cause of all its citizens; the small and the great, the rich and the poor. Now, America only champions and bails out the rich and powerful. That my friends is not dealing just. Millions of middle class families are struggling, but no bail out for them. Why won''t the country at least put a moratorium on foreclosures, and why won''t the powerful corporations like the oil companies and dominant banks stop taking advantage of the American middle class? Why won''t someone in government stand up for the average American citizen? Just food for thought if we want the blessings of the Creator to continue to flow upon our nation.

[foresider2]

Before any of these "financial giants" accept one penny of OUR money, I think the CEO, Chairman and top officials of each company should have to forfeit their houses, yachts, vehicles, money and possessions. This might serve as a good incentive to do what they were paid to do. Meanwhile, I would like to sell my portion of the 7.6% interest in AIG to pay my OWN bills

[slim1h2o]

I%u2019ll DEBATE ANYBODY ON WHY GEORGE W. BUSH SHOULD BE PRESIDENT ANOTHER 8 YEARS.


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Posted by twalk1122 at 09:00 AM : Sep 17, 2008


I''ll take whatever you''re smoking!!

He''s driven this country straight into the ground.
And the NCLB program, all that has done is bring other students down to the level of their peers.

That''s DOWN, not up!

Mediocrity rules!

(sarcasm)

[kaiyo4u]

A private corporation is bailing out AIG, and AIG should be the one to pay them back not us. Just how is the government supposed to be involved in business, other than regulating it. I was always taught that the gov was supposed to be non profit... I think our media is confusing the issue here. It is more likely the FRB that is getting the almost 80% share than our government.
Do your research people, the Federal Reserve Bank is just that, a private bank that loans money to our government. They are in it for a profit, their vested interest is to milk us dry as taxpayers. The FRB needs to go the way of the Do-do bird.

[slim1h2o]

Taxpayers bailout AIG,

Is this really a free market? Where the fittest survives?

I think the field needs to be leveled, and any company that can''t compete in todays business climate.

At least it would save us taxpayers billions of dollars.

[whatithink1]

joule3,

No, it was McCain. He didn''t show up related to the issue that you are saying "he cared so much about."

[whatithink1]

joule3,

The bankers TOLD the people that home prices will always rise and they can live in the house for 3 years at an appreciation of 20% or 30% per year and sell the house at a huge profit. Many of those with little education believe it. After all, we are graduating students who can''t even read and write. There was a case where a guy was given a loan and he was technically mentally retarded. The banker received a HUGE BONUS nonetheless and NOBODY IS ASKING FOR THIS MONEY BACK!

If you are talking about leverage, this is exactly what we''ve allowed corporations to do. Corporations are working with the equivalent of making $17K a year and having $800K in debt.

[whatithink1]

McCain is full of ...

[whatithink1]

joule3,

Funny that McCain was so worried about this issue three years ago that he didn''t even show up to vote on it!

[whatithink1]

"Posted by whatithink1 at 07:05 AM : Sep 17, 2008

Funny you don''''t mention Obama''''s advisors who are from the banking and mortgage companies.


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Posted by joule3 at 07:14 AM : Sep 17, 2008"



Obama''s advisors did not write the bill that created this mess. One of Obama''s mortgage industry advisors is Warren Buffett... I trust him more than Phil "Nation of Whiners" Gramm.

[whatithink1]

"I said home buyers needed to exercise some basic math skills. If they did not earn the 3x to 4x the house value, then THEY should have passed.
Posted by joule3 at 07:11 AM : Sep 17, 2008"


Again, they wouldn''t have had the option to take it or pass if the bankers weren''t giving the money out like candy. You expect more from people who don''t understand basic math than you are from people with PhDs in mathmatics. Bankers, before this silly securitization, would have never given an $800K loan to someone making $17K a year...and NOBODY would have faulted them for it.

[whatithink1]

"Within a year Congress had a chance to vote on legislation which would have prevented further abuses and curbed predatory lending practices which have helped create the foreclosure epidemic. Again McCain publicly talked a good game, and promptly voted to help the GOP kill the legislation. Anyone who got sucked-in with a bad sub-prime mortgage since 2005, has McCain and his party to blame for letting lenders and consumers continue to lead one another into temptation. For the lenders who folded this year, McCain and the Republicans who have gridlocked efforts to end the insanity let that happen too, and did nothing. The taxpayer has footed the bill, now, for billions in bailouts that should never have been needed. The economy is indeed, like a giant ship, hard to steer quickly, but there was ample time to intervene in a number of ways before total economic collapse of families, small businesses, and even many of the oldest and most stable financial institutions in the world. In 2005, McCain had another chance to help pass a badly needed reform to fix the Federal Housing Administration''s (FHA) lending practices, in spite of being in town, he did not even show up for the vote, helping to kill the bill without having to be on record with a "no" vote if things went to hell, which they soon did. "

[whatithink1]

"McCain has talked before about cleaning things up in the financial industry, but talk is all that he has done. Time after time, John McCain will make a lot of noise about being the crusader, and then bail out when the time comes to back it up. His career is characterized by mostly sound and fury signifying nothing. Four years ago, the indications were that there was trouble brewing in the mortgage industry due to the elimination of the common-sense rules that had once protected consumers, and lenders alike. "

[armydog2]

85 billion dollars astronomical amount to borrow and aig will pay this back by passing it on to the consumer. I live within my means, if I want something I save for it, my house is paid for and my car is paid for. I save for my children and grandchildren. So we get it on both ends our tax dollars going to bail these f#ckups out and higher prices for their services. Anyone who does business with this company should pull everything out and go elsewhere. I wouldn''t trust them with my money.

[whatithink1]

joule3,

You can say whatever you want about what McCain tried to do, what I see is his record. What I see is that his economic advisor is the same person who de-regulated the banking industry. If he was so concerned three years ago, why pick someone in the last year to be your economic advisor who went completely for what you were supposedly against?