AIG Bailed Out By The Fed

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September 17, 2008

The once formidable U.S. insurance giant AIG was rescued by a massive $85 billion emergency fund for nearly an 80% equity stake, says the Daily Mail.

AIG’s near collapse comes at the heels of Lehman Brothers demise as the credit crunch continues its toll on major finance related companies. Unfortunately for Lehman, U.S. authorities denied bailing out the investment bank forcing it to file for bankruptcy.

Amidst fears that if AIG toppled it would drag the economy down with it regulators were prompted to step in and help keep the company afloat, but not without a heavy cost. The Daily Mail reports, “AIG will pay interest at a steep 8.5 per cent above the three-month London Interbank Offered Rate, making the current rate equal to about 11.4 per cent.”

The massive bail out is unprecedented by the U.S. government and shortly after news broke of the financial aid package, U.S. stocks rose along with the dollar and oil prices. AIG will have to consider selling assets quickly in order to pay back the high interest bail out loan.

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