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US Rescues AIG with $85 Billion Loan


The U.S. government has announced it will provide the world's biggest insurer, AIG, with an $85-billion emergency loan, to prevent the company's collapse. From Washington, VOA's Sean Maroney reports.

The U.S. Federal Reserve Board justified its action by saying a bankruptcy involving AIG would cause significant problems in the world's already fragile financial markets.

New York Governor David Paterson announced the loan late Tuesday, saying individuals' insurance policies and jobs will be unaffected.

"The Board of AIG has accepted an offer from the Federal Reserve Board whereby the Feds will allow AIG to receive a revolving loan of 85-billion dollars, to be paid back over a 24-month period," he said.

In exchange for the loan, the U.S. government will own nearly 80 percent of AIG's equity. The company's stock price has declined by 98 percent, in the past year.

Insurance analyst Cliff Gallant says AIG's financial problems started with the mortgages it backed.

"They placed a very large, big bet and I think the collapse of the housing markets began a spiral which caused that bet to go bad," he said.

The Dow Jones industrial average closed Tuesday with a gain of 141 points, following Monday's dramatic sell off when investment bank Lehman Brothers went into bankruptcy protection and Merrill Lynch was acquired by Bank of America. Some investors say the market's rally, in the final two hours of trading, was triggered by rumors of the rescue of AIG.
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