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AIG Gets Billions More In Bailout

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The Associated Press

The Tampa Tribune

Published: November 11, 2008

WASHINGTON - It's a $150 billion gamble.

That's the size of the newly enlarged financial lifeline the U.S. government threw tottering insurance giant American International Group on Monday, expanding an aid package that's gradually grown since it began as an $85 billion loan in September.

The big question: Will the bailout be enough to stabilize the firm?

Here are some questions and answers about the rescue plan:

Didn't AIG already get a bailout from the government?

Yes. Back on Sept. 16, the Federal Reserve initially provided AIG with a $85 billion loan, in return for a nearly 80 percent ownership stake. On Oct. 8, the Fed followed up with an additional $37.8 billion loan.

Then, on Oct. 31, AIG was allowed to access an additional $20.9 billion through the Fed's "commercial paper" program. That's where the Fed buys mounds of short-term debt from the companies, which often used the money for crucial day-to-day expenses, such as payroll and supplies.

So, the original bailout plan didn't work?

Even with the original $85 billion lifeline, AIG continued to have problems as the country's overall financial and credit conditions worsened. The company was burning through cash and was saddled with risky mortgage-related securities that had fallen sharply in value and continued to deteriorate after the initial bailout.
AIG on Monday reported a massive third-quarter hit. It lost $24.47 billion, or $9.05 a share, after a profit of $3.09 billion, or $1.19 a share, a year ago.

Revenue fell 97 percent to $898 million from $29.84 billion in the third quarter of 2007.

"This is the largest quarterly loss we've ever reported," Chief Financial Officer David Herzog told investors on a conference call.

What's different about the new bailout?

All told, the new bailout is bigger - providing more than $150 billion to AIG.

In a new twist, the Treasury Department is now stepping in with $40 billion, which is coming from the $700 billion financial bailout package enacted last month. It marked the first time any of that bailout money has gone to any company other than a bank.

Monday's restructuring also provides AIG with easier terms on the original Fed loan.

The new package reduces the interest rate AIG will pay and will extend the loan term to five years from two, reducing the need for AIG to sell off business lines and other assets at fire-sale prices to repay the government.

Also, the new arrangement replaced the second $37.8 billion Fed loan to AIG with a $52.5 billion aid package.

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