AIG gets $85 billion bail out from the government

Breaking (more as it develops):

AIG will turn over control of the company to the US government in exchange for an $85 billion loan to avoid bankruptcy tomorrow.

From Bloomberg:

American International Group Inc., the biggest U.S. insurer by assets, has accepted a deal to turn over control in exchange for an $85 billion loan from the Federal Reserve, a person familiar with the situation said.

AIG will replace management as part of the deal, said the person, who declined to be named because no public announcement has been made. AIG spokesman Peter Tulupman had no immediate comment.

The agreement would keep New York-based AIG in business, averting a collapse that could have threatened more financial companies and caused $180 billion in losses, according to RBC Capital Markets. AIG needed the loan to stave off a collapse after its credit ratings were cut and shares plunged 79 percent since Sept. 11.

While it has to make you sick as a reader of this blog Paul Kedrosky at Infectious Greed has some good perspective to consider:

I wish people would shut up about “moral hazard”. Yes, bridging AIG through its current crisis is not something you want to do; and yes, it would be better if the market solved its own problem. But even a cursory analysts of the serpentine connections between AIG and capital markets tells you that the latter just can’t happen, so you have to hold your nose, be an adult, and live with the former.

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