Lehman Bros.--now in bankruptcy and partially purchased by Barclays. However, after meeting Tuesday with the Fed and the State of New York, the details were worked out for the loan.
"A disorderly failure of AIG could add to already significant levels of financial market fragility," the Fed said in a prepared statement. The Fed will receive a 79.9% stake in the company as collateral for the loan and the loan can be repaid with an asset sale.
AIG said in a statement,"We believe the loan, which is backed by profitable, well-capitalized operating subsidiaries with substantial value, will protect all AIG policyholders, address rating agency concerns and give AIG the time necessary to conduct asset sales on an orderly basis." The company anticipates that the sale of their assets will sufficiently enable the reinsurer to pay off the Federal loan.
Gov. Paterson had given AIG a chance to move some of its assets to gain some liquidity for the eventual deal. Paterson had intimated that this was an effort to prevent the New York taxpayers from paying for AIG's bailout. Paterson is concerned that the events of these past two weeks are signs of larger troubles in the economy.
"There is a paradigm shift that is sweeping through our nation and the globe," he says in a statement. "The failure of Lehman Brothers, Bear Stearns, and the sale of Merrill Lynch--all firms that provided huge amounts of revenue to our coffers in New York--are troubling signs about the state of our economy. There is no doubt that we must take deliberate action to ensure that we protect our solvency in the months and years ahead."
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