Fed announces deal to take over ailing AIG

$85 billion loan would give central bank 80 percent stake in insurance giant

AP

September 16, MSNBC

NEW YORK - In a bid to save financial markets and economy from further turmoil, the U.S. government agreed Tuesday to provide an $85 billion emergency loan to rescue the huge insurer AIG. The Federal Reserve said in a statement it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.

It also could "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said.

"The President supports the agreement announced this evening by the Federal Reserve," said White House spokesman Tony Fratto. "These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy."

Treasury Secretary Henry Paulson said the administration was working closely with the Fed, the Securities and Exchange Commission and other government regulators to "enhance the stability and orderliness of our financial markets and minimize the disruption to our economy."

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photo: From left, acting Chairman and Commissioner of the U.S. Commodity Futures Trading Commission Walter Lukken, Federal Reserve Chairman Ben Bernanke, Chairman of the Securities and Exchange Commission Christopher Cox and Federal Reserve Governor Kevin Warsh speak outside the West Wing of the White House after a meeting with President Bush. (Lawrence Jackson / AP)