The federal government today announced an expanded effort to bail out American International Group, including a partial government takeover of the company, as the troubled insurance giant disclosed massive losses over the past three months.
The new plan expands an existing government bailout program from $123 billion to $150 billion. But more significantly, it restructures the plan to include much less debt and instead provides direct government investment in the company.
Under the new plan, the government will buy $40 billion of AIG preferred stock, a step that puts AIG on par with major U.S. banks, which the government partially nationalized last month. Another $52.5 billion will be used to take troubled assets off of the company’s books.
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The new plan is an acknowledgement that an original bid to help the company was in fact weighing it down by requiring quick repayment and a high interest rate on government loans.
Federal officials announced the new AIG bailout at 6 a.m. — shortly before the company reported that it had lost $24.5 billion from July through October. AIG has now posted losses of $37.6 billion for the first nine months of the year.
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In a conference call with reporters this morning, Treasury officials explained that AIG needed time and more capital to weather a financial storm that had threatened to bring it down. Federal officials say the insurance giant, a company with global sweep, must not be allowed to fail because it is so deeply entwined in the U.S. economy and financial system.