So, essentially, the Fed is paying for your life insurance or retirement policy now. Can anyone tell me why this is different than a gov't pension? We might as well just cut out the bull and the CEOs and find a more marketable name for socialism

So this is the invisible hand of the market at work, right? RIGHT?

Adam Smith is rolling over in his grave. So now we have the worst possible mixed economy - privatized profit (with little tax paid on it) and socialized losses (with tax-paid subsidies).

What happen to the Republican theory of letting the market decide? Seems to me the market decided AIG should fail. So let it.

At least mention this is a 24-month term a rate of three-month Libor plus 850 basis points!!!

The market will have to get really really bad for the taxpayer not to get paid back. I bet they hardly touch the loan and have others fund their day to day operations knowing the fed has their back.

This is not a bad deal for the taxpayers like others are making it out to be.

@BaysideWrestling: Corporate cronyism is the modern Republican economic theory, not fiscal conservatism.

@BaysideWrestling: I don't know that we can consider this part of some well thought out economic plan? it's more like they bailed it out to prevent a total flooring of the markets. What other option was there? just like letting Fannie and Freddie die, there is just no choice but to bail them out.

@laserjobs: so please explain more to this Texas retard. How can the US govt bail out Bear Stearns, FanFred and AIG? I have heard the argument that AIG is widespread & will have a domino effect on many companies/industries. I'm not being a wiseass, just need some education.

@laserjobs: LOL. Please let us screw them over subprime or check in to cash style

@TomCruiseDiedforYourSins:

Also, when assets are billions but liabilities are trillions, how does that work?

It's great to know that Bush 2.0b is doing such an awesome job of making government smalle--oh, wait.

@TomCruiseDiedforYourSins: My understanding is that the money to do this is just created out of thin air by the Fed. Which means that you're paying for via devaluation of your bank account and salary.

I've been very critical of Paulson up to now, but it does seem with Lehman and now AIG that he has finally wrested control of Treasury policy from the Village Idiot-in-Chief. I don't know if this level of bailout was warranted, but it is very encouraging that the US will take an 80% share of the company in return. This may be the first time in 28 years of Reaganomics that government finally decided to operate like a business and get some value for its investment instead of serving as an emergency feed trough.

In a way, it's a bit of a relief that a large insuring group has been saved from destruction. But, it's somewhat alarming to see so many government bailouts.

Judging by how things work in the United States, I wonder if we'll be paying as much in taxes like those welfare-state countries, all without most of the benefits. Sweet!

Couldn't they just have had a bake sale?

I think this may be the inflection point, WaMu is the next target the shorts will be after but may not be able to significantly pressure the stock down. Even if they did, no doubt another bank, HSBC, Chase would swoop it up.

Na na na na, na na na na, hey hey hey, goodbye...my 401(k). I loved you! We had such good times together. Such dreams for the future. But hey, at least I'll always be able to fall back on Social Secur-- oh, right. Never mind.

Crapmuffins.

Just so long as they dismember the company and chop some heads.

What's the worth in continuously throwing money into a pit? That's kind of how this feels.

"Oh you guys got yourself in an assload of trouble?...Ok, here's $85 billion to get out of it. Try to be smarter next time."

Well I think... oh, who am I kidding? I'm stoopid at this stuff and so is most everyone I know. Nobody better fuck with the change in my desk drawer though, because I need that for lunch.

uhhh, fuck?

When asked what struggling small business owners should do, Paulson ran away and cried "Leave me alone! I hate all of you! I hate you!"

Bernanke tried to give his Ronald Reagan action figure to Paulson to play with, but it was no use. Paulson just would not come out of his office.

A Treasury Department spokesperson said Paulson was "resting."

What a crock!!!,All these guys including AIG are in someway involved with the subprime mortgage mess which has been going on for 2 years at this point and yet NOW they CRY poor mouth???

Now if the FED is going to "loan" them money and take a stake and fund it by SELLING ASSETS-why the heck didn't AIG or the others start selling assets to stablilize or cover their balance sheets.WTF:AIG is an insurance company and they don't give themselves insurance in the form of a stable balance sheet.

To top it off the EX president or whatever Hank Greenberg protect some stock awards by putting them in his wifes name-why the heck did the board want that money bad enough to go after him.Did Greenberg know they were messed up and his pay not only excessive but NEEDED?

And this is a company who can't even decide who it's leaders should be-after Greenberg left certain factions of the company wanted him back.I think he left around 2005-he was incharge when they entered this mess BEFORE hand.Then to top it off AIG,Greenberg and Warren Buffet are all pointing fingers at each other over a FRAUDULENT DEAL-I think the company was General Re?-a French company.I think it involved FRAUDULENT ACCOUNTING-and we're going to give these guy 85 BILLION-F U-shake a cup and tell your story in a book or movie.

@HRHKingFridayXX:

It also means the Fed now owns most of the Stowe ski resort, one of AIG's more esoteric investments.

The Fed Gave AIG $85 Billion and All I Got Was This Lousy T-Shirt

Newsflash:

Fed to Borrow $85 Billion from Treasury

Newsflash:

Treasury to borrow $85 Billion from Some Rich Saudi Guy

Newsflash:

USA now owned by Some Rich Saudi Guy

@Tank:

No. FUCK!!!

News Flash Feds:

You just signed that check with my vote. Good bye and good riddance.

seriously. the tax payers have never had such a sweet deal. This company is not insolvent. It is a great company that is still making a ton of money, it just had a bit of an immediate liquidity issue. Any other time, it would have been able to raise this loan very easily from the capital markets (remember Sam Zell can raise billions to buy a newspaper company....the largest fucking insurer in the planet with assets worth a gazillion dollars could do as well). This is a case of bad timing and a bit of bad planning that they need the money during this credit crunch. Now the US government gives the loan at at insane interest rate (L+850bps is junk bond territory) for a credit worthy company. anyway, here's the cookie; for this very very safe secured loan, the taxpayers get 80% of the company and the current shareholders get f'd. even the Private equity vultures didn't manage to wrestle such a sweet deal. so dear tax payers, say thanks to the nice bald man at the treasury dept and let's go back to debating animals that can wear lipstick while rome burns.

God-fucking-damnit. I was honestly rather giddy that AIG might keel over and die - I've been looking forward to something like this for a while. It's not so much that I want the economy to collapse (but that's whatever, in my opinion,) as it's that I enjoy seeing companies like this getting what they deserve for making poor business decisions.

@ Sabrinad

Your 401k (and my 403b) are issued through AIG's investment wings, but you're an owner of the mutual fund's companies--not AIG itself. If a broker sells you stock in...what, Nike, and the broker goes out of business, you still own the Nike stock--got it? If you have a fixed or variable annuity it's most likely through VALIC, which is it's own company. I was freaking out a bit about my own 403b and found this at 403bwise.com:

[www.403bwise.com]

I keep on hearing 'too big to fail':what? special rules for corporations who have no problem collecting from customers who don't pay them and force them into forclosure or bankruptcy or gouge paying customers or won't pay customer claims.

This is an insurance company-INSURANCE which is A BET-the company is hoping you won't file a claim and you are betting you will have to file a claim someday.So this great big insurance company made big bets by insuring sub prime loans? And they loose and want us to pay?

Too big to fail-where the heck were all the regulators when these corporations are gorging on mergers and aquisitions becoming bigger.Shouldn't the regulators be figuring out if all this m & a activity is forming monopolies.So if the new company collapses and affects as many as it now how is that NOT a monopoly,where were the choices or alternatives to prevent this.

So a big corporate insurance company like AIG can deny my claim which will force me to pay out of pocket,fall behind on bills,reduce my budget AND spending on the local economy or reduce food and medical care which could very easily turn in a catestrophic financial disaster for me and yet AIG files "a claim" with the taxpayers wanting us to pay for their screw ups???

Go shake a cup on the street-pun intended

Bullpuckey! sweet deal for the taxpayer my butt. Someone needs to make a stand in the sand on this crap & start suffering the consequences

good deal or not remains to be seen. This is the less scarier of the options we had. Of course we could have let the company die, but the systematic effect in the market could have been catastrophic. At any rate, this deal should be viewed as a positive as this allows AIG the opportunity to correct itself. Also, it needs to be understood that selling off AIG's assets in the current market doesn't help anyone. The deal that the Fed negotiated allows us to wait until the market stabilizes and liquidity becomes less of an issue. if at the end of the term, AIG defaults and does not pay us back as indicated by the terms, then we are in a better economy (hopefully) to sell the assets and recoup our potential loss. the best case scenario is that AIG rectifies itself and repays the loan as termed. This would be good for the market AND we get are market.

I don't mean to take the discussion away from the topic at hand, but I am curious as to why people are not as upset about our investment in other interests which to my knowledge has no guaranteed returns (financially speaking). And the dollar values are a LOT higher. Its like giving your crazy uncle your 401K to invest in his newest invention but getting upset when letting your friend borrow $5 for lunch.

anyway... how many more shoes do we have left???

Sorry to point out typos, Consumerist, but the title should have read:

"Feds Throw $85 billion Down A Money Pit"

correction to my previous post "This would be good for the market AND we get our money back."

Sorry about that.

well, i've been a proponent of actions like this for awhile now - "buyout, not bailout" is how i touted it. it's what we should have done to the airlines 7 years ago & any other industry that pleads for their life.

now that i've seen it in practice, i'm not so sure. have we all noticed the picking & choosing going on here? AIG gets a loan, they tell lehman's to f- off, they tell merrill to find a buyer, they force bear sterns & countrywide into shotgun weddings (possibly the same for wamu) - it's just the good old boy network at work.

@u1itn0w2day:

I think the idea of "too big to fail" means that too many other institutions are dependent on them continuing to exist, and they would also fail if the too-big-to-fail company fails.

As I heard it explained on NPR yesterday, AIG is "too big to fail" because they insure the loans of many other financial institutions. If those companies cannot get insurance, they will not give new loans. If they cannot give new loans, businesses will not have money to stay in business, and other banks may fail as well.

@Paytriot:

It isn't a sweet deal for the taxpayer, but it may not be a terrible one, either, since the alternative could be worse. (And they may in fact pay off the loan on time.)

@TechnoDestructo: If that many institutions have insurance from AIG or a subsidiary to me that is proof in itself that AIG is a monopoly of somekind.

And all this goes back to the regulators not challenging the mergers or aquisitions of AIG and others over the years.

I can't believe they don't have somekind of percentage of market rule? If you have more than X percent of the market by yourself or a subsidiary you should be considered a monopoly.

Oh well:back to more local and regional banks and businesses rather than the international conglomerates-oh no : competition...

I've been a silent consumerist reader for a while but I feel compelled to present some balance to this story. I'm just a lowly analyst, but am hoping to offer some insight and perspective on the situation as someone currently working on Wall street.

First, please take the time to read the article before commenting because trust me, the paragraph Ben quotes is only a small part of the whole story. It is clear from some of the comments that some people still have little to no idea of what the financial crisis is, and how it affects them. I don't mean this in offense and I realize it may take time not everyone may have, but it will be well worth the effort in education. This crisis is one that affects everyone, not just those in the financial world.

It is dismaying to read the amount of comments jeering on the fall of companies and banks. "They're getting what they deserve! Screw them!" some of you say. There seems to be this perception that Wall Street firms are full of evil people just rollin' in the dough from messing around with money.

The fact is I know many good, hard working people who packed up their desks this weekend, many of them working in other divisions that don't even deal with CDOs (the complex derivatives that brought about this mess). They arguably have as much to do with the current crisis as the average joe working his blue collar job.

Maybe you don't care, which is fine. Then consider your own self interest. The collapse of Lehman was a huge shock for the markets, but would have been nothing compared to AIG. Some say AIG should have been allowed to fail. In truth, the nature of AIG's business and the global economy itself would make this a very, very bad thing.

If AIG were to fall, it's more than just another financial giant being brought down. The problem is that AIG insures a vast amount of mortgage backed securities held by other banks. If AIG went bankrupt, all of these securities would decrease in value, hammering the various firms and banks that hold them. You would literally get a chain effect of more financial disasters around the world which would almost certainly drag us past recession into a full blown depression. It doesn't matter who you are, that is bad news all round. To put this in perspective, for every job lost on wall street, three to four more will be lost in the city of new york.

Please do not take this as hyperbole. Some complain about the politicians and CEOs keeping everyone in the dark until the last minute. Well, this is the truth. It IS that bad. It is past the 11th hour and the severity of the crisis is no joke.

I am definitely not a fan of the Bush administration and the way he has run the country, but the Fed loan was the best solution to an extremely difficult and complex problem given the immediacy required by the market. The fact of the matter is AIG is mostly a well-run business. It's problems arose from one of many, many subdivisions that got into the CDO business a while back, which has brought the entire firm down. Those guys likely made a lot of money, but are long gone from the firm now, leaving their problems behind.

To be clear, AIG isn't even in debt. It has a LIQUIDITY, not SOLVENCY problem. It has plenty of assets, but cannot quickly sell them off to raise capital (finding buyers takes time it didn't have). The Fed loan is simply there to buy AIG time to sell off it's assets to cover it's obligations and restore market confidence.

I'll end with a request to Ben Popken and the rest of the Consumerist bloggers. You've built a great site here and have done much to inform the average consumer. However, I believe that you committed a great disservice in your selective quoting of the NYT article as it not only incites (in this case) a lack of confidence in the administration's efforts to resolve the crisis (arguably leading to more panic), it also wastes the opportunity to educate more readers on something everyone really needs to start paying attention to. Fear has precipitated much of the uncertainty in the market up to this point. These are tough times, there is no need to make things seem worse than they already are. So please, post responsibly. If you've read this far, thanks and I hope it was worth your time. :)

Wait. Wasn't the plan to starve the Federal government until it was small enough to strangle in a bathtub?

At least the Republicans are holding firm on not helping those that are going to lose their houses through foreclosure. That will teach those scum that dared to want to buy a house that real Americans stand on their own two feet.

Steve says LOUD NOISES!

This was on a Guardian comment page about this story, it made me laugh...

"The Federal reserve Board proudly announces Socialism 2.0

Fully compatible with Capitalism 1.0 and higher.

Comes with the look and feel of Capitalism, so speculators feel right at home using it. No retraining needed."

@laserjobs:

What happens if they do need the money, and the financial industry is put under new regulation and they have trouble paying back the loan?

What you need to understand is that the Social Security system is in shambles, it's been borrowed against for the last twenty years straight. The FDIC is also is bad shape and needs refunding. We're spending money on a war the is questionable at best, and the money we're "lending" out isn't really ours, it's borrowed itself. We're lending it at rates that are at or below what we borrowed it for. We don't have money to be promising to private companies, plain and simple. Our debt as a nation is enormous.

Any business that ran itself like that would eventually be sold or go broke. If you missed it, America's been for sale for a while now, and we're beginning to fall back into a less powerful role

So basically Lehman just fucked up their timing. The government can let one fail to, you know, give them all a big lesson. But two mega blow ups in a week would have been just too much.

We may need to reconsider buying toxic toys from China again - to make sure their treasury doesn't cut us off any time soon.

@johnva:

For years my understanding has been that our dollars are represented by the gold standard... many years ago. The metals at Fort Knox used to back up the paper money that circulates in America - but over the years the very real temptation of unlimited money printing has gotten away from us. Our once proud 100% "gold standard" has dwindled to a tiny, tiny fraction of the circulation value it represents - the money we use, deposit etc. But some faction of the gov't (Fed. Reserve?) keeps printing plenty more paper money, without any gold backing it up. This, for many years, has driven the real value of gold up over the years, making it a sensible investment - in places like Switzerland who seem to not use this printing practice.

I understand the metal/money ratio decides a nation's fiscal attractiveess and rich folk want to put moneys into those banks? Or do we all know that?

History channel was running a show on the Great Depression this morning. From the other room, I actually had to ask if he was watching the news or some history show...