U.S. government loans AIG US$85 billion

With the full support of the U.S. Treasury Department, the Federal Reserve Bank of New York loaned the American International Group (AIG) US$85 billion on Sept. 16 to keep the country’s largest insurer solvent.
AIG’s stock dropped to less than US$3 per share when investors learned AIG held investments similar to those held by global investment bank Lehman Brothers, which has filed for bankruptcy protection.
The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers, according to the Federal Reserve.
“The [Federal Reserve] Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance,” the Federal Reserve announced in a statement.
“The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.”
The AIG facility has a 24-month term. AIG will be permitted to draw up to US$85 billion under the facility.
The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9% equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
In a statement, U.S. Secretary Henry M. Paulson Jr. noted: “These are challenging times for our financial markets. We are working closely with the Federal Reserve, the SEC and other regulators to enhance the stability and orderliness of our financial markets and minimize disruption to our economy.”