Lehman Brothers wasn't worth any public money. But AIG? Well, that's another story. After the Bear Stearns, Fannie Mae and Freddie bailouts, people applauded when Treasury Secretary Henry Paulson said there was no more public money available. But he has already been forced to change his tune. AIG, which underwrote a lot of protection on mortgage-related securities, is much more of a systemic risk. A credit downgrade could have serious repercussions for the many firms that bought bond protection from it. So the Fed and Treasury are once again scrambling to put together a bailout in the form of a bridge loan of $85 billion, the Financial Times reports. The quid pro quo here is that the government will assume control of the enterprise. All this is nothing short of stunning. The New York Times called it "the most radical intervention in private business in the central bank's history." A private sector bailout plan put together by Goldman Sachs and JPMorgan Chase failed to materialize given the precarious nature of AIG's credit rating. That left taxpayers on the hook.
For more:
- here's a Financial Times article
- here's the New York Times article
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