Wednesday, September 17, 2008

U.S. Takes Control of AIG

These are some big steps toward socialism if you ask me.

 

 

 

 

U.S. Takes Control of AIG

The U.S. government Tuesday night seized control of American International Group Inc., one of the world’s largest insurers, by cutting a tough $85 billion deal that will keep the company afloat and steady the country’s financial system.

The Federal Reserve will lend up to $85 billion to AIG and the U.S. government will effectively get a 79.9 percent equity stake in the insurer in the form of warrants called equity participation notes. The two-year loan will carry an interest rate of Libor plus 8.5 percentage points. (Libor, the London interbank offered rate, is a common short-term lending benchmark.)

The loan is secured by AIG's assets, including its profitable insurance businesses, giving the Fed some protection even if markets continue to sink. And if AIG rebounds, taxpayers could reap a big profit through the government's equity stake.

"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 Fed said in a statement.

Source: The Wall Street Journal, Matthew Karnitschnig, Deborah Solomon, Liam Pleven and Jon E. Hilsenrath (09/17/2008)

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