In a record bailout of a private company, the government on Monday provided a new $150 billion financial-rescue package to troubled insurance giant American International Group, including $40 billion for partial ownership.
The action, announced by the Federal Reserve and the Treasury Department, was taken as it became increasingly clear that an original financial lifeline thrown to AIG in September would be insufficient to stabilize the teetering company. All told, the moves boost aid to the company to more than $150 billion. Fed officials, however, expressed confidence that the money would be repaid to taxpayers.
The $40 billion infusion comes from the recently enacted $700 billion financial bailout package. The government is buying preferred shares of AIG stock, giving taxpayers an ownership stake in the company. In turn, restrictions will be placed on executive compensation at the firm.
As part of the new arrangement, the Federal Reserve is reducing a $85 billion loan it had made available to AIG to $60billion. The Fed also is replacing a separate $37.8 billion loan to the insurance company with a $52.5 billion aid package.
The actions were needed to “keep the company strong and facilitate its ability to complete its restructuring process successfully,” the Federal Reserve said.
If the company were to fail, it would wreak havoc on the country's already ailing economic health, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke determined in September when the government first moved to help AIG, Perino said.
Shares of AIG added 32 cents, or 15.2 percent, to $2.43 in early-afternoon trading.
It marked the first time money from the $700 billion bailout package Congress enacted last month has gone to any company other than a bank.
The Treasury Department, which is overseeing the bailout program, has promised to inject $250 billion into banks in return for partial ownership. The original notion behind the bailout package was to help financial institutions lend money more freely again, one of the main reasons the economy is in danger of getting stuck in a long and painful recession.