Update: Fed in $85-billion bailout of AIG
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Update: Just two days after the Bush administration refused to help Lehman Bros. avoid bankruptcy, the Federal Reserve was finalizing plans for an $85-billion bailout, and takeover, of insurance giant American International Group, according to reports tonight. The bailout marks a stunning reversal of the administration’s weekend insistence that Wall Street use private money to solve its own problems.
The L.A. Times tonight: In the largest single financial intervention in the nation’s history and a measure of the depths of America’s financial crisis, the Federal Reserve will loan insurance giant American International Group Inc. $85 billion to finance the company’s likely liquidation over the next two years, people familiar with the decision said tonight.
Earlier links, headlines, and a few comments:
The New York Times: ‘The Federal Reserve plans to offer an $85-billion bridge loan to the American International Group in return for control of the ailing insurance giant, people briefed on the matter said Tuesday night.’
CNBC.com: ‘American International Group will get an $85-billion loan from the federal government in exchange for an 80 percent stake in itself, sources have told CNBC.’
The Wall Street Journal: ‘... with no private sector support forthcoming, Federal Reserve Chairman Ben Bernanke, Federal Reserve Bank of New York President Timothy Geithner and Treasury Secretary Henry Paulson concluded that federal assistance would be necessary to avert an AIG bankruptcy, which they feared would have disastrous repercussions throughout the financial markets.’
The McCain angle, from Bloomberg: ‘Republican presidential nominee John McCain called for a commission to study the crisis in U.S. financial markets like the one that investigated the Sept. 11 attacks and said the government shouldn’t rescue insurer American International Group Inc.’
As his administration worked to save AIG, President Bush ducked the press:’U.S. President George W. Bush will no longer make a statement to reporters on Tuesday after meeting with his Working Group on Financial Markets as previously scheduled, the White House said.’
Relatedly: Sen. Barack Obama ridiculed McCain’s call for an investigation, saying McCain has failed to offer ‘concrete plans to solve these issues.’ When Obama was asked last night for his plan to re-regulate Wall Street, he said it would be ‘premature’ to offer a detailed plan. Obama also said it would be ‘premature’ to discuss a broader bailout program for the mortgage industry.
Analysis/Bloviation: It appears tonight that, in the eyes of the government, AIG is ‘too big to fail,’ while Lehman Bros. was simply a big failure. Or perhaps I’m reading too much into the situation; maybe the bailout policy is ‘Eenie, meenie, miney, moe.’
--Peter Viles
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Photo Credit: Treasury Secretary Henry Paulson, third from right, arrives with his staff at the White House Tuesday to brief President Bush on financial market developments. By Bloomberg News.