Fed sets new rules for which financials get saved, bails out AIG

Posted Sep 17th 2008 3:55AM by Douglas McIntyre
Filed under: Federal Natl Mtge (FNM), Amer Intl Group (AIG), Lehman Br Holdings (LEH)

The Fed saved AIG (NYSE: AIG) by loaning the insurance company $85 billion for two years in exchange for 79.9% of the firm. AIG will sell assets to help pay off the loan.

According to Bloomberg, the Federal Reserve concluded that "a disorderly failure of AIG could add to already significant levels of financial market fragility."

At this point, the government has taken an entirely different approach to the troubles at Lehman (NYSE: LEH), Bear Stearns, Fannie Mae (NYSE: FNM), and Freddie Mac (NYSE: FRE). The aid it has given to AIG broke a rule set earlier in the week. That is that the Fed and Treasury would not give financial assistance to troubled financial firms in the name of keeping them in business. The global banking systems would have to sort out its problems on its own.

The U.S. authorities will make the case that AIG was "too big to fail." No one will ever know whether that is true. Would the insurance company's demise lead to a partial collapse of the financial system? Who will ever be able to figure that out?

It is not unfair for the employees and shareholders to ask what happened to their lifeline.

The fact is that the Fed has the power to do what it wants. Whether that is arbitrary or not, fair or not, it is a fact of life.

Human judgment, not free markets are guiding the financial system now.

Douglas A. McIntyre is an editor at 247wallst.com.

Tags: AIG, FNM, FRE, inthenews, LEH

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Reader Comments (Page 1 of 1)

9-17-2008 @ 6:31AM

al coholic said...

As you said,

The fact is that the Fed has the power to do what it wants. Whether that is arbitrary or not, fair or not, it is a fact of life.

The fact that the Fed answers to no one shows how little faith there is in Congress, The President, and the judicial system to resolve issues quickly and efficiently. The Fed was set up to be a benign dictatorship, able to control our economy without any input from the taxpayers about how their dollars are spent.

May we'll see a new round of TV commercials rivaling those from Geico, stating simply, buy your insurance from AIG or we'll have to loan them more money.

9-17-2008 @ 8:26AM

sid said...

Anyone notice that all these ceo's of these bailouts Jewish ? Dr OBAMA has said that we must cooperate with Palestine and get rid of the Jewish state. If DR Obama were in office, we would not be helping the Jewish like this at the expense of the tax payers. Obama hates Jews and if you do to, vote for prosperity this fall. Obama 08, a united Palestine.