US Giant Bailed Out By $85bn Loan

The Federal Reserve has authorised a $85bn deal to bail out the struggling insurance giant AIG.

It follows much speculation about the fate of the firm following the collapse of Lehman Brothers and the ensuing world financial uncertainty.

The plan is aimed at saving the insurer from a “disorderly failure” that could wreak economic havoc.

(Article continues below)

A central bank statement said the Federal Reserve Board made the decision “with the full support of the Treasury Department” under Section 13(3) of the Federal Reserve Act.

“The secured loan has terms and conditions designed to protect the interests of the US government and taxpayers,” the statement said.

The Fed said under the two-year facility the US government will receive a 79.9% equity interest in AIG.

• A d v e r t i s e m e n t

“The 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 Fed said in a statement.

Full article here