U.S. Government Takes Control Of AIG, Extends $85 Billion Lifeline

In an extraordinary reversal, the Federal Reserve extended a two-year $85 billion “bridge” loan to American International Group in order to help the troubled U.S. insurance giant avert imminent bankruptcy. (NYT)

The rescue proposal, approved by AIG’s board late Tuesday, will give the Federal Reserve a 79.9% equity interest and dilute existing shareholders.  At the order of Treasury Secretary Henry Paulson, the former head of insurer Allstate, Edward Liddy, will replace AIG’s Chief Executive Robert Willumstad. In agreeing to the terms of the emergency loan, the Federal Reserve and U.S. Treasury reluctantly acknowledged that an AIG bankruptcy would inflict “catastrophic” damage to the global financial system. Earlier Tuesday, a private consortium led by Goldman Sachs and J.P. Morgan failed to secure $75 billion in funding for the insurer.  Without government intervention, analysts said AIG’s collapse could have triggered industry-wide losses of up to $180 billion.

Sources:

Fed’s $85 Billion Loan Rescues Insurer (NYT)

U.S. To Take Over AIG In $85 Billion Bailout (WSJ)

AIG Gets Up to $85 Billion Fed Loan; Cedes Control (Bloomberg)

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