Fed Tentatively Agrees to Provide $85B to AIG

 

By David S. Hilzenrath and Zachary A. Goldfarb

Washington Post Staff Writers
Tuesday, September 16, 2008; 8:25 PM

The Federal Reserve has tentatively agreed to provide $85 billion in emergency loans to insurance giant AIG in hope of preventing a bankruptcy that could send tremors through the U.S. and global financial markets, according to a source familiar with the plan.

In exchange, the Fed would get rights to 79.9 percent of AIG's stock and replace the company's management, the source said. The company would be put up as collateral. The insurance subsidiaries of AIG, which are regulated by state authorities, would be excluded from the arrangement, the source said.

The proceeds of an asset sales would be used to pay down the federal loan.

The plan must still be approved by the governors of the Federal Reserve.

Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke traveled to Capitol Hill Tuesday evening to brief congressional leaders on the government's planning.

Afterward, some of those briefed expressed initial support for the intervention but declined to provide details.

"It's heavy, heavy, heavy. It's much more than has been done except Fannie and Freddie," said Sen. Charles Schumer (D-N.Y.), who heads the Joint Economic Committee, referring to mortgage finance giants, Fannie Mae and Freddie Mac, which were taken over by the government earlier this month. "But when you look at the alternatives none of them are better."

Rep. Spencer Bachus (R-Ala.), ranking Republican member of the House Financial Services Committee, said, "I believe you put a floor under the market with this. I do feel this is an opportunity to start stabilizing the markets." He added, "I think we've got a shot at getting some finality to this market."

Talks to avert a bankruptcy filing by AIG continued today at the Federal Reserve Bank of New York, which has been trying to orchestrate a private rescue. J.P. Morgan, which is advising AIG, yesterday was trying to get a collection of lenders to put up $70 billion to $75 billion.

New York Gov. David A. Paterson (D) said today that would be difficult.

Former AIG chief Maurice "Hank" Greenberg, whose personal fortune is largely tied to the company, hired the financial firm Perella Weinberg Partners to explore a variety of scenarios, including a takeover of the company. In a document filed with the Securities and Exchange Commission, Greenberg said he might also buy assets from or make an investment in AIG.

It was unclear whether Greenberg's efforts could change the picture.