Taxpayers Now Own Insurer AIG

Washington, DC, Sept. 16, 2008--The U.S. government took control of American International Group Inc. -- one of the world's biggest insurers -- in an $85 billion deal.

The step, which gives AIG time to sell off assets, marks a dramatic reversal for the federal government, which had been resisting requests from AIG for an emergency loan or some intervention that would prevent the insurer from falling into bankruptcy.

Last weekend, the government rebuffed Lehman Brothers Holdings Inc., allowing the big investment bank to go under instead of giving it financial support.

However, this time the government apparently decided AIG truly was too big to fail.

The Fed will lend up to $85 billion to AIG, and the U.S. government will effectively get a 79.9 percent equity stake in the insurer. The two-year loan will carry an interest rate of Libor plus 8.5 percentage points.

The loan is secured by AIG's assets, including its profitable insurance businesses. And if AIG rebounds, taxpayers could be big winners.