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By David S. Hilzenrath and Zachary A. Goldfarb

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.

COMPLETE COLLECTION

LONDON, September 15, 2008

By Sarah Mower

On a day when fashion—make that everyone—could do with some cheering up, Luella Bartley did quite a brilliant job of perking up London's spirits. How that's possible in combinations of mauve, orange, and pink, executed in tweed, lace, and frills, doesn't quite translate to the written word. Yet once the girl got going with the boxy jackets, and the asymmetrical tiered frill skirts, and the big satin hair bows, and the net veils, and the pearl-chain handbags, and the tulle gloves, she had the audience smiling like the financial markets could take care of themselves for a moment.

"I wanted it to be a proper, ladylike character—but a bit psychedelic," Bartley said. "And I wanted color, but in a sort of sick way. When I saw it all lined up, I thought, Ew! Can we do this?" Good job she did, because her Spring collection was simply the most worked and accomplished she's ever done. True, Comme des Garçons, Marc Jacobs, and Vivienne Westwood may have passed by way of Chanel-ish tweeds, hyper-color, tacky-but-cool frilly trimmings, and mini-crinis, but Luella's unique angle on haberdashery is that it must end up flattering the girl. The little suiting pieces patchworked together from lavender tweeds and overlays of lace with their upstanding frills encircling the shoulder somehow made tweed look nonfrumpy—and possible to wear without the slightest air of irony. And when she does a dress, she knows what girls love: a bit of a prom number, but in this case with a nipped waist, a swathed top, a yoke to flatten the hips, and all kinds of bouncy tiers and rear peplum action switching along as she walks.

The fact that Bartley also incorporated the striped collegiate blazers that used to pop up at the beginning of her career and new versions of last summer's Liberty florals among the fan-pleated dresses was a smart commercial move—they liked it last time, here's the update. Everything else she had going on was a delicious step into girl-tempting newness: the pillboxes and hair accessories and the piled-on, mixed-up pearls and diamanté in the jewelry, as well as her clever transpositions of necklaces into shoulder-bag chains. Bartley herself—possibly because she's an ex-journalist and doesn't pretend to be anything other than an accessible mid-price designer—is quite offhand about the level of accomplishment it took to achieve all this. Still, it seems like a fitting time to remember that Bartley is part of the close-knit cohort of London designers, including Stella McCartney and Phoebe Philo, who have been coming into their own these past few years. She's often overlooked, but Bartley now deserves every bit as much credit as her friends in high places.