Government announces $85 billion loan to save AIG
source: http://www.usatoday.com/money/industries/insurance/2008-09-16-aig-downgrades_N.htm?csp=23&RM...
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The Federal Reserve said Tuesday night it would lend up to $85 billion to flailing insurance giant American International Group, saying the move was necessary to protect the financial system.
The action averts a bankruptcy filing by AIG (AIG), which has been struggling to raise capital after crippling losses on protection it sold to investors in mortgage-backed securities. It also faced additional pressures to meet collateral calls from investors after its credit rating was downgraded by four rating agencies Monday night.
The senior management of AIG will be tossed out, and the government will effectively be in control of the company.
The government will have a 79.9% equity interest in AIG and the right to veto the payment of dividends to common and preferred shareholders.
The Fed's decision, made with the Treasury Department's support, came just days after the Treasury and Fed refused to bail out investment bank Lehman Bros. The main difference between the two situations: AIG is so huge and its operations so intertwined in the financial system that the Fed feared an AIG failure could harm the broader economy.
The action averts a bankruptcy filing by AIG (AIG), which has been struggling to raise capital after crippling losses on protection it sold to investors in mortgage-backed securities. It also faced additional pressures to meet collateral calls from investors after its credit rating was downgraded by four rating agencies Monday night.
The senior management of AIG will be tossed out, and the government will effectively be in control of the company.
The government will have a 79.9% equity interest in AIG and the right to veto the payment of dividends to common and preferred shareholders.
The Fed's decision, made with the Treasury Department's support, came just days after the Treasury and Fed refused to bail out investment bank Lehman Bros. The main difference between the two situations: AIG is so huge and its operations so intertwined in the financial system that the Fed feared an AIG failure could harm the broader economy.
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