An AIG bailout package was announce late Tuesday night by the Federal Reserve rescuing the company by pledging a loan of $85 Billion. AIG needed a bailout due to mortgage related losses and an inability to raise capital fast enough.

AIG Bailout

American International Group - AIG - gets the liquidity they need to cover the losses caused by over-leveraged positions in falling mortgage backed debts and derivatives. The government gets to run AIG with an 80% stake in the company.

Today the talk of an bankruptcy weighed heavily on the stock market as rumors swirled with many heavy hitter calling for government intervention since AIG had more tentacles into the US and foreign markets…more than Lehman Brothers who the government let fail over the weekend. My article on the potential of an AIG bankruptcy recounts it all.

It was also known that AIG had profitable business divisions and substantial assets that could securitize any loan which under the terms of the AIG bailout are due in two years.

The subprime mortgage meltdown is now just ripping through the every aspect of the financial system like a virus. I doubt if the AIG bailout is the last we’ll see. The question is how much medicine does the Fed have to spread around.

Good Luck!

UPDATE: It appears we are now hearing the details of the AIG bailout and where the money went. The money went at 100 cents on the dollar to the company’s counter-parties otherwise known as “trading partners”.

It seems the NY Fed Chairman, now Treasury Secretary, Tim Geithner does know how or care to negotiate to save the American taxpayer a bit of dough especially when those he’s negotiating with are banks. And of course, the bank counter-parties knowing it was taxpayer money passing through AIG to them, didn’t suggest taking anything less than 100% of what AIG owed them.

Okay, one company said they’d take 98 cents on the dollar…UBS. Thanks UBS but no thanks was Geithner’s reply. Recently it was disclosed in the Special Inspector General’s Report on the A.I.G. Bailout by it’s author, Neil Barofsky, that the Fed “refused to use its considerable leverage” in these negotiations.

Mr. Barofsky concluded, “Tens of billions of dollars of government money was funneled inexorably and directly to A.I.G.’s counter-parties.”.

Well that’s what you get when you let bankers get a hold of tax payer money.

Are we really surprised?

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