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 ...

592545_080917_AIG5.jpg
592545_080917_AIG5.jpg

Top Story

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 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.

Morgan Stanley and Washington Mutual may be the next banks next to find a buyer.

Oil prices are at their lowest level since February.

The U.S. House of Representatives moved to lift the moratorium on offshore drilling.

Decision ’08

The financial crisis probably helps Barack Obama by shifting the focus to economic issues. The latest Reuters poll has him up by 2 percentage points.

John McCain yesterday denounced “greed” on Wall Street in a speech designed to better position the Arizona senator on the economy.

Americas

A witness accused Mario Montoya, the Colombian general who stewards the U.S. military aid package, of working with paramilitary death squads.

Negotiations between the Bolivian government and five renegade provinces appear to be making fragile progress. The U.S. government has nonetheless ordered its people to leave the country.

Asia

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

A car bomb struck the U.S. Embassy in Sanaa, Yemen, killing at least 10 people.

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.

Europe

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.

Today’s Agenda

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.

More from Foreign Policy

Newspapers in Tehran feature on their front page news about the China-brokered deal between Iran and Saudi Arabia to restore ties, signed in Beijing the previous day, on March, 11 2023.
Newspapers in Tehran feature on their front page news about the China-brokered deal between Iran and Saudi Arabia to restore ties, signed in Beijing the previous day, on March, 11 2023.

Saudi-Iranian Détente Is a Wake-Up Call for America

The peace plan is a big deal—and it’s no accident that China brokered it.

Austin and Gallant stand at podiums side by side next to each others' national flags.
Austin and Gallant stand at podiums side by side next to each others' national flags.

The U.S.-Israel Relationship No Longer Makes Sense

If Israel and its supporters want the country to continue receiving U.S. largesse, they will need to come up with a new narrative.

Russian President Vladimir Putin lays flowers at the Moscow Kremlin Wall in the Alexander Garden during an event marking Defender of the Fatherland Day in Moscow.
Russian President Vladimir Putin lays flowers at the Moscow Kremlin Wall in the Alexander Garden during an event marking Defender of the Fatherland Day in Moscow.

Putin Is Trapped in the Sunk-Cost Fallacy of War

Moscow is grasping for meaning in a meaningless invasion.

An Iranian man holds a newspaper reporting the China-brokered deal between Iran and Saudi Arabia to restore ties, in Tehran on March 11.
An Iranian man holds a newspaper reporting the China-brokered deal between Iran and Saudi Arabia to restore ties, in Tehran on March 11.

How China’s Saudi-Iran Deal Can Serve U.S. Interests

And why there’s less to Beijing’s diplomatic breakthrough than meets the eye.