Why the government is helping AIG
TEXT OF STORY
Scott Jagow: The federal government allowed Lehman Brothers to die its horrible death. But the Feds are not letting AIG go down in flames. Last night, the Federal Reserve agreed to save AIG from bankruptcy with an $85 billion loan. Joining us from New York, is Marketplace’s Jeremy Hobson. Jeremy, what reason is being given for AIG’s rescue?
Jeremy Hobson: Well, we’ve been asking the question all week, Scott: Is AIG too big to fail? And it looks like both sides in Washington, Republicans and Democrats, have decided that indeed it was too big to fail. You don’t hear a lot of partisan bickering this morning about this deal. Now, one of the reasons it was too big to fail is that it is connected all over the world. There have been people saying that if AIG did fail, you’d have a cascading effect across the globe. The other thing is that unlike Lehman Brothers, AIG was not on anybody’s radar screen until last week. So the market basically just didn’t have time to prepare for this.
Jagow: Well, what are the terms of this particular bailout?
Hobson: It’s basically, an $85 billion bridge loan from the federal government. In exchange for that, the federal government will get warrants, pieces of paper that say, if you don’t pay this loan back, AIG, in two years, we’ll take over up to about 80 percent of the company.
Jagow: And how realistic is it to think that AIG could pay the money back?
Hobson: Well, it’s possible. AIG does have some parts of its business — it’s a huge insurance company — it’s got some parts of its business that are probably doing just fine, and they could conceivably sell those parts off and pay the money back. If they don’t, obviously, the taxpayers are on the hook for that $85 billion.
Jagow: All right, Jeremy Hobson in New York, thank you.
Hobson: Thanks, Scott.
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