The U.S. government intervened to rescue American International Group (AIG), one of the world’s largest insurance companies, with a massive $85 billion bailout. The move was designed to prevent the company’s failure and avert a potential collapse of the global financial system.
Under the terms of the agreement, the Federal Reserve provided AIG with an $85 billion loan. In return, the U.S. government received a 79.9% equity stake in AIG, effectively taking control of the company.
The decision to rescue AIG was controversial, but government officials argued that the company’s interconnectedness with the financial system made its failure too risky. AIG had insured trillions of dollars’ worth of assets, including mortgage-backed securities, and its collapse could have triggered a chain reaction of defaults and bankruptcies.
The bailout of AIG was one of the most significant government interventions in the financial crisis of 2008. It highlighted the fragility of the financial system and the potential for even large institutions to fail.
Key aspects of the bailout included:
- $85 billion loan from the Federal Reserve
- 79.9% equity stake for the U.S. government
- Prevention of systemic risk
- Controversial decision due to moral hazard concerns
The rescue of AIG became a symbol of the government’s efforts to stabilize the financial system during the crisis. While it prevented a potential catastrophe, it also raised questions about the role of government intervention in the market and the potential for moral hazard.
