U.S. provides $40 billion in new aid to AIG

updated 11:21 a.m. ET Nov. 10, 2008

WASHINGTON - When the government offered an emergency loan to insurer American International Group in September, eyebrows shot up at the $85 billion price tag. Now it looks like pocket change.

The size of the AIG lifeline swelled to more than $150 billion on Monday, a record for a private company. But the head of the broader financial rescue package was cool to other companies reaching for a piece of the bailout pie.

The new AIG package includes a $40 billion chunk of the $700 billion financial bailout. It’s the first time money from the big rescue bill has gone to any company other than a bank.

General Motors, Ford and Chrysler, burning through cash and bleeding jobs, are prodding the government for more help. The leaders of the House and Senate have urged Treasury Secretary Henry Paulson to get some of the $700 billion to the Big Three.

The automakers, covering all their options, are also pushing to get help as part of a new, multibillion-dollar stimulus package for the economy if Democrats push it through Congress when a lame-duck session convenes next week.

President-elect Barack Obama has said his transition team would explore options to provide relief to the auto industry, and President Bush’s press secretary said Monday the White House would “listen to” Congress if they try to help automakers.

Any money would be on top of the $25 billion in loans that Congress passed in September to help retool auto plants to build more fuel-efficient vehicles.

Neel Kashkari, the interim head of the $700 billion bailout program, was cool to the idea of funneling the money to companies beyond banks and AIG.

“This morning’s action with AIG was a one-off event necessary for financial stability. It is not the establishment of a new program,” he said at a financial conference in New York.

The original Fed loan to AIG was $85 billion, and the Fed added a $38 billion loan in October. But that has not been enough to firm up the company, which is so big and interconnected to other firms that its failure would devastate the economy.

Under the new plan, the Fed will provide $60 billion in loans. The Treasury will provide $40 billion to buy up preferred stock. And the government will spend close to $53 billion to buy up mortgage-backed assets and other AIG contracts on debt.

Total package: $153 billion. And AIG has also taken advantage of a federal plan to buy up short-term debt routinely issued by companies, known as commercial paper.

The $40 billion going to AIG will buy preferred shares of company stock, giving taxpayers an ownership stake. In turn, restrictions will be placed on executive pay at the firm.

The Fed stepped in with an $85 billion loan in September because the company is so big — linked to mutual funds and retirement products held by millions of Americans, not to mention ties to U.S. mortgages — that its failure would have devastated the economy.

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