The rescue of AIG:
1) The Federal Reserve (not the federal government) lent AIG $85 billion.
2) AIG pays LIBOR plus 8.5% (The Financial Times described it as: "The Fed’s rescue is on punishing terms: AIG must repay the $85bn loan at a storecard-like 8.5 percentage points over Libor, liquidating perfectly fine assets to do so.")
3) The federal government gets 79.9% of AIG's equity.
4) AIG's CEO steps down (involuntarily.)
5) The Treasury is supplying the Fed with extra funds.
6) Why Do It? Too many banks had bonds insured by AIG that would have had their capital impaired if AIG was downgraded
7) Why the draconian measures? To avoid moral hazard.
Earlier Bank of America bought Merrill Lynch.
Wednesday, September 17, 2008
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