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See What People Are Saying About... AIG's Massive Losses

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The U.S. government dramatically boosted its bailout of insurer American International Group Inc and eased the terms of its loans to the company on Monday after an initial rescue plan failed to stabilize the company.

Under the new plan, the U.S. Treasury will take buy $40 billion of AIG preferred shares with money from its $700 billion financial rescue fund, the Troubled Asset Relief Program (TARP), a tool that did not exist at the time of AIG's initial bailout in mid-September.

This will allow AIG to pay down its loan from the Federal Reserve to $60 billion from $85 billion. The Fed also will provide more than $50 billion to buy distressed securities and backstop the
firm's lending portfolio.

The new plan is nearly double the government's initial $85 billion rescue of AIG, forged on September 16, weeks before the Treasury launched its plan to inject capital directly into American financial institutions.

The government said its equity stake in the insurer would still be about 80 percent, making it the biggest beneficiary of the revised bailout.

A Fed official said the government, after an outside analysis, concluded that cutting AIG's loan rate and taking on its mortgage-backed securities and credit default swap contracts was the best way to stabilize the firm. The government is confident the loans will be repaid and there is a chance it could return to profits, the official said.

And that leads to our Fast Money Reader Poll. Did the government do the right thing by giving AIG more assistance?




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