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Feds fork over $37.8 billion more to AIG

By Michelle Malkin  •  October 8, 2008 07:14 PM

Time for another party, eh, AIG?

The feds are just warming up, people. This is chump change:

The Federal Reserve Board said Wednesday that it would provide up to an additional $37.8 billion to the insurance giant, the American International Group, to help the company deal with a continuing liquidity crisis.

The additional funds come atop $85 billon in credit that the Federal Reserve Board extended to A.I.G. about two weeks, just as the current financial crisis was unfolding. At the time, the bailout of A.I.G. was the most radical intervention ever by the central bank in a public company.

Under the latest step, the central bank, working through the Federal Reserve Bank of New York, will provide an additional $37.8 billion to A.I.G.’s regulated life insurance subsidiaries and will receive investment-grade, fixed-income securities in return.

The money will be used to settle existing transactions related to its securities lending business. Under that program, A.I.G. lent out securities to investors and others receiving both the value of such securities and a fee in return. The insurance giant then took the funds and placed them in other investments like mortgage-backed securities.

Now that the value of mortgage-backed securities has plummeted, A.I.G. does not have the money to repay those who are returning borrowed securities. As a result, the central bank is stepping in to take those securities and provide A.I.G. with cash to meet its obligations.

Just a matter of time before the next failing company puts out it hand and asks…

Posted in: AIG,Subprime crisis

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Categories: AIG, Subprime crisis, Tim Geithner