by Laura Conaway

The news this morning ranges from a Dow that fell below 7,000 for the first time since 1997 to an Eastern European financial crisis that just won't quit.

But the big, big, big news is all AIG. The numbers are U-G-L-Y: The insurer reports a loss of $61.7 billion in the fourth quarter of 2008, the worst loss in corporate history. Fearing a devastating domino effect, the Federal Reserve and the Treasury have announced $30 billion at the ready to prevent the end of the world as we know it.

Yesterday, I talked to someone I know who works at the Fed. This person recommended Joe Nocera's column Saturday in the New York Times. Look, the person said, the Federal Reserve is still confident that it can get ahead of the overall financial crisis, though it will cost an amazing amount of money. And yes, the Fed staffer said, the situation with AIG should make everyone mad. Nocera may have put it best:

Other firms used many of the same shady techniques as A.I.G., but none did them on such a broad scale and with such utter recklessness. And yet — and this is the part that should make your blood boil — the company is being kept alive precisely because it behaved so badly.

 

This is officials' fourth pass at propping up AIG. The company continues to report losses as the value of its holdings continues to fall. In addition to those writedowns, the company is burning up cash. Taxpayers had already invested some $150 billion in AIG, for an ownership stake of just under 80 percent. The Federal Reserve will now take a share of two AIG businesses, the Asia-based American International Assurance Co. and American Life Insurance Co., which operates in 50 countries.

The Federal Reserve is not trying to save AIG so much as keep it from taking out the rest of the global economy in a catastrophic collapse. This is a story of amazing complexity. We're aiming to drill down into part of it for today's podcast. Stick with this. It's worth understanding.