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Government To Give AIG $40B More
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Government To Give AIG $40B More

Economy

Government To Give AIG $40B More

Government To Give AIG $40B More
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The move comes after American International Group already received more than $100 billion of the original bailout package in September. Why is the insurance group getting more money?

ALEX COHEN, host:

Here in the U.S., the federal government announced today that it will shell out even more money to save the troubled insurance company AIG. You may recall earlier this year, the government agreed to lend AIG $123 billion to get back on its feet in the midst of the credit crunch. But the company's financial position is still wobbly.

NPR's Jim Zarroli joins us now. And Jim, can you remind us how exactly AIG got into so much trouble in the first place?

JIM ZARROLI: Well, AIG was a very big and successful insurance company. It did well in insurance products. But it got into a lot of trouble by selling very complex financial products, which, as you know, have lost huge amounts of money because of the housing downturn.

Now, in September, when conditions for the company were getting pretty bad, the Federal Reserve agreed to loan AIG $85 billion. In exchange, it took some stock in the company as collateral. The idea was that, you know, the loan would sort of tide AIG over while it sold off assets. But it's been very hard to sell anything because of the credit crunch.

So, meanwhile, the interest payments were piling up. AIG said it lost 25 - almost $25 billion last quarter. So, this morning, the government said it was going back to the drawing board and trying to work out something else. It's really an admission that the efforts so far haven't worked.

COHEN: So, how much money is this new plan going to involve, and where exactly is it going to be coming from?

ZARROLI: Well, the government is basically rewriting the terms of the loan - terms of the bailout. For one thing, it's going to lower the amount of money that it lends the company, but it will buy an additional $40 billion in AIG stock. This has become sort of the government's preferred way of helping troubled financial companies. You know, instead of just giving them money, it buys stock in them outright.

As for the money that AIG does borrow from the government, the interest rate will be lower. The interest rate the government charged before was very high, and the reason it did this was political. The government knew that taxpayers wouldn't like lending AIG money. So, they wanted to take - make some of the terms of the loan pretty harsh so no one could come back and say, you know, this was some kind of sweetheart deal. Well, now the rate is going to be much more manageable. The company will have more time to pay it off.

Now, in exchange for this, AIG will have to agree to restrictions on financial compensation for five top executives. AIG, as you may remember, got into a lot of trouble because it sent some agents on expensive treatments to spas in California right after receiving the bailout. So, this compensation is kind of a sensitive issue for the company.

COHEN: And what about taxpayers? Can we expect to get any of that money back from AIG at some point?

ZARROLI: Well, as I said, you know, the government is going to be buying $40 billion in AIG stock. The money will come from the big, $700 billion bailout plan that Congress approved in September. You know, some of that, taxpayers presumably will get back if stock goes up. You know, but nobody really knows.

On the other hand, you know, what the government is doing today could also be costly because a lot of companies want part of the $700 billion bailout plan, like the auto companies. And it's going to be tougher to say no to a lot of them now that they're giving money to AIG.

COHEN: NPR's Jim Zarroli. Thank you.

ZARROLI: You're welcome.

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