Government Provides Record Aid Package to AIG

The American International Group logo is shown Tuesday, Sept. 16, 2008 in New York. Stocks...

The American International Group logo is shown Tuesday, Sept. 16, 2008 in New York. Stocks fluctuated Tuesday following a report that the government is considering extending aid to AIG _ the latest in a string of companies that investors worry could be undone by a shortage of cash.

(Mark Lennihan/AP Photo)

In a record bailout of a private company, the government on Monday provided a new $150 billion financial-rescue package to troubled insurance giant American International Group, including $40 billion for partial ownership.

The action, announced by the Federal Reserve and the Treasury Department, was taken as it became increasingly clear that an original financial lifeline thrown to AIG in September would be insufficient to stabilize the teetering company. All told, the moves boost aid to the company to more than $150 billion. Fed officials, however, expressed confidence that the money would be repaid to taxpayers.

The $40 billion infusion comes from the recently enacted $700 billion financial bailout package. The government is buying preferred shares of AIG stock, giving taxpayers an ownership stake in the company. In turn, restrictions will be placed on executive compensation at the firm.

Related

Back to the Well: Feds to Give AIG $40 Billion More

'The Party's Over' for AIG Says Cuomo

AIG Fights Back on $440,000 Resort Trip: Says No Corporate Execs Attended

As part of the new arrangement, the Federal Reserve is reducing a $85 billion loan it had made available to AIG to $60 billion. The Fed also is replacing a separate $37.8 billion loan to the insurance company with a $52.5 billion aid package.

The actions were needed to "keep the company strong and facilitate its ability to complete its restructuring process successfully," the Federal Reserve said.

And that would be good for the fragile U.S. economy, said White House press secretary Dana Perino.

The new package "will allow AIG to continue to restructure themselves in a way that will not hurt the overall economy. AIG is a large, interconnected firm," she said.

If the company were to fail, it would wreak havoc on the country's already ailing economic health, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke determined back in September when the government first moved to help AIG, Perino said.

Shares of AIG added 32 cents, or 15.2 percent, to $2.43 in early-afternoon trading. The company's stock has traded between $1.25 and $62.30 in the past year.