Morning Brief: In for a dime, in for $85 billion
Top Story STAN HONDA/AFP/Getty Images The U.S. Federal Reserve last night announced an $85 billion rescue plan of the American International Group (AIG), one of the world’s largest insurance companies. The New York Times calls the move “the most radical intervention in private business in the central bank’s history.” Under the plan, the U.S. government ...
The U.S. Federal Reserve last night announced an $85 billion rescue plan of the American International Group (AIG), one of the world’s largest insurance companies. The New York Times calls the move “the most radical intervention in private business in the central bank’s history.”
Under the plan, the U.S. government would gain the right to buy AIG stock, effectively giving taxpayers an 80 percent stake in the company. “This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy,” the Fed said in its statement. AIG’s CEO will be replaced by Edward Liddy, the former Allstate chief.
Without the deal, AIG was prepared to declare bankruptcy today. Had the insurance giant collapsed, “the spillover effects could have been incredible,” Princeton economist Uwe Reinhardt told the Times. “It appears the chief reason behind the Fed action was fear that the company’s failure could weaken or destroy nearly a half-trillion dollars’ worth of financial protection that AIG provides Wall Street firms and the biggest companies of Europe and Asia,” the LA Times explains.
House Speaker Nancy Pelosi criticized the Fed’s move, calling the $85 billion price tag “just too enormous for the American people to guarantee.” But as the Wall Street Journal notes, “if AIG rebounds, taxpayers could reap a big profit through the government’s equity stake.”
Economy and Business
Barclays tentatively agreed to buy Lehman Brothers’ capital markets units for $1.75 billion.
Oil prices are at their lowest level since February.
The U.S. House of Representatives moved to lift the moratorium on offshore drilling.
John McCain yesterday denounced “greed” on Wall Street in a speech designed to better position the Arizona senator on the economy.
A witness accused Mario Montoya, the Colombian general who stewards the U.S. military aid package, of working with paramilitary death squads.
U.S. Defense Secretary Robert Gates apologized to Afghanistan for the recent airstrikes that killed an estimated 90 civilians.
The U.S. Food and Drug Administration has forbidden imports from Ranbaxy, an Indian drug firm whose quality control was deemed suspect.
Thailand elected Somchai Wongsawat, the brother-in-law of Thaksin Shinawatra, as its new prime minister.
Middle East and Africa
Kadima, Israel’s top party, is choosing a new leader to replace outgoing PM Ehud Olmert.
There have been 31 female suicide bombers so far this year in Iraq.
Russia’s two main stock exchanges have been shut down to prevent further steep declines.
A minister has joined the Labor Party revolt against British PM Gordon Brown.
The new EU Treaty likely won’t go into effect until 2010, Luxembourg’s prime minister says.
Fox News host Sean Hannity interviews Alaska Gov. Sarah Palin.
Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, is in Pakistan to try and smooth over a rough patch in relations. Yesterday, Pakistan ordered its military to open fire on U.S. forces that cross the border.
McCain is stumping in Michigan today; Obama is campaigning in Nevada.
Panama’s president visits the White House.
The Paralympics end today.
Blake Hounshell is a former managing editor of Foreign Policy.
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