Federal Goverment Approves 85 Billion Dollar Loan To Failing AIG
Published: September 17, 2008
On Tuesday, the U.S. government approved an $85 billion dollar emergency loan to international insurer AIG, in an effort to help save the failing company and save the economy from further turmoil.
In a written statement, The Federal Reserve said it determined that "a disorderly failure of AIG could hurt the already delicate financial markets and the economy." Fed representatives said the bailout would help prevent "substantially higher borrowing costs, reduced household wealth and materially weaker economic performance."
According to White House spokesman Tony Fratto, President Bush was in agreement with the decision. "The President supports the agreement announced this evening by the Federal Reserve," said 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 Bush administration has worked closely working with the Feds, the Securities and Exchange Commission and other government regulators in order to "enhance the stability and orderliness of our financial markets and minimize the disruption to our economy."
In return for the loan, the Fed government said they will receive a 79.9 percent equity stake in AIG.
The recent problems at AIG stem from its debt against default mortgages and other insurance issues of mortgage-backed securities. If AIG could not pay back its soured debt, many investors feared the consequences would be similar to the recent collapse of investment bank Lehman Brothers.
Without the Fed loan, AIG would have defaulted on its obligations and the buyers of its insurance; millions may have found themselves without protection against losses on the debt they hold.
"If Lehman Brother's failure could help trigger AIG's going down," says Timothy Canova, a professor of international law at Chapman University, "who knows who AIG's failure could trigger next."
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Federal Goverment Approves 85 Billion Dollar Loan To Failing AIG
Published: September 17, 2008
Without federal bailout, AIG was in danger of default, leaving millions temporarily uninsured
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