Fed Bails out Wall St. Insurer with $85 Billion "Loan"

The Federal Reserve Bank of New York announced Tuesday night that it would "loan" up to $85 billion to American International Group, an insurer of arcane investments on Wall Street. It made the announcement after unsuccessfully trying to find a private buyer for the past several days, various financial news services reported.

The Federal Reserve action, which would give the government -- taxpayers -- a nearly 80 percent stake in AIG, would be repaid as the firm is broken up and sold in the next 24 months, the Federal Reserve said in a short press release.

"The interests of taxpayers are protected by key terms of the loan," the agency said. "The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm's assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders."

The reaction in Congress, where leaders were briefed on the bailout early Tuesday, was of begrudging acceptance, according to news services. Key Democrats, such as House Speaker Nancy Pelosi, called the $85 billion figure a "staggering sum," while Rep. Barney Frank (D-MA), the House Financial Services Committee Chairman, said the bailout showed the private sector needed to be regulated.