Regulators and banks try to save AIG

— -- Insurance giant American International Group aig struggled Monday to find a financial lifeline that would prevent it from becoming the next victim in the market crisis sweeping the financial sector.

Government regulators and Wall Street banks working with AIG weighed several potential plans to shore up the global insurer, which has been crippled by the credit and subprime mortgage meltdowns.

New York Gov. David Paterson said in a news conference that AIG could use $20 billion from its subsidiaries as collateral to raise cash to sustain itself during the financial crisis.

Paterson, who is involved because states regulate the insurance industry, said that the move will help the insurer fund its daily operations. Paterson also said the state is asking federal regulators for an extraordinary extension of credit to help AIG manage.

AIG executives met in New York with Timothy Geithner, president of the Federal Reserve Bank of New York, and representatives from the Treasury Department and the New York State Insurance Department. Goldman Sachs gs and JPMorgan Chase, jpm a financial adviser to AIG, are also involved.

Details of possible plans were not disclosed. But among the possibilities is participation by Goldman Sachs and JPMorgan Chase in a loan fund of $70 billion to $75 billion to help AIG, according to a financial industry official who would not be named because talks are private. The Wall Street Journal website first reported the possibility of the private sector fund to backstop AIG.

Treasury Secretary Henry Paulson on Monday downplayed the possibility of the government stepping in with special aid for AIG. During a White House news conference, he said, "What's going on in New York is a private sector effort."

AIG, one of the world's largest insurers, with $1 trillion in assets in 2007, posted $13 billion in losses in the first six months of 2008 after being rocked by the subprime loan debacle. The insurer, which named former Citigroup executive Robert Willumstad as CEO in June, may face more losses from hurricanes that recently hit the Gulf of Mexico region.

AIG could write down $30 billion in the current quarter, and credit-rating agencies likely will downgrade it, says Citigroup analyst Joshua Shanker. "We believe AIG will survive," Shanker wrote in a report. But he said it's unclear what assets AIG will sell to stay afloat.

AIG's stock, which traded at about $70 last fall, tumbled 61% Monday to $4.76.

Contributing: The Associated Press