The Federal Reserve Bank of New York announced Tuesday that it would lend up to $85 billion to AIG (American International Group) in an effort to help the struggling investment giant avoid bankruptcy.

The Fed suggested in a press release that the terms of the agreement aim to protect the interests of the U.S. government and American taxpayers. The press release also stated that an AIG failure could lead to further market fragility and higher borrowing costs. Obviously, the Fed is trying to protect the U.S. taxpayer who, in the long term, may end up paying more if AIG fails than if the government comes to it’s rescue; nonetheless, the question remains if it will really make the difference intended.

Under the deal, AIG is required to sell off some of its assets in order to repay the government loan. The U.S. government stands to receive a 79.9% equity stake in AIG as a result of the bailout.

All of this bailout news and talk of government ownership in private business is starting to make me see red.

Categories: Finance


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