Date:18/09/2008 URL: http://www.thehindu.com/2008/09/18/stories/2008091856571700.htm

Business

Fed bails out ailing AIG

WASHINGTON: For the second time this month, the U.S. government stepped in to bail out a private financial company, rescuing American International Group Inc., one of the world’s largest insurers, with an $85-billion injection of taxpayer money.

The Federal Reserve said AIG’s failure would further disrupt markets and threaten the already fragile economy.

AIG said it would repay the money in full with proceeds from the sales of some of its assets.

Under the deal announced Tuesday night, the Federal Reserve will provide a two-year $85-billion emergency loan to AIG, which teetered on the edge of failure because of stresses caused by the collapse of the sub-prime mortgage market and the credit crunch that ensued. In return, the government will get a 79.9 per cent stake in AIG and the right to remove senior management.

The move was similar to government’s seizure on September 7 of mortgage giants Fannie Mae and Freddie Mac. — AP