The Federal Reserve Board announced yesterday that it would provide as much as $37.8 billion to American International Group.
The amount is on top of the $85 billion the Fed loaned the company last month. AIG execs said last week they had already drawn on $61 billion of the earlier loan.
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The latest assist takes a different shape from the original loan. This time, the Fed has authorized the Federal Reserve Bank of New York to borrow securities from AIG subsidiaries, in return for cash.
The insurance giant is struggling to overcome massive losses on several fronts, including derivatives, securities and subprime mortgages.
Market turmoil has clearly exceeded expectations at the time of the original loan. As the Wall Street Journal notes today, the Fed is trying to buy time for the company to sell off assets.
The federal government now holds 80 percent of the company. To pay off the loans, AIG is looking to sell subsidiaries that don’t focuson property and casualty insurance.
“Our goal is to emerge from this process as a smaller but more nimble company that is solidly profitable and has good long-term growth prospects,” AIG Chairman and CEO Edward M. Liddy said last week.
Yesterday’s announcement is likely to stir opposition from Congress. The House held a contentious hearing Monday, during which former CEOs were grilled about excessive pay, risk taking and a costly company retreat that took place after the original bailout.
The company is also under investigation by the Justice Department and Securities and Exchange Commission.
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