The FED made a shocking announcement today when they publicly stated that they were offering the largest insurance company in the world AIG an $85 billion bailout package.

American International Group, AIG, will be receiving a federal loan from the Federal Reserve Bank of New York in the amount of $85 billion, in exchange for 79.9% stake in the company. AIG’s assets exceed $1.1 trillion dollars and planned to declare bankruptcy today. If they had, their collapse would have sent world stock markets and financial concerns into chaos.

“[A] disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance,” the Fed said in a statement.

The Federal Reserve Board will be replacing the company executives, possibly with FED employees, and maintain controlling interest in the company as well as a position on the board of directors. They claim that customers will not notice a difference in this exchange of power.

“Taxpayers will be protected”, the Fed said, “because the loan is backed by the assets of AIG and its subsidiaries. The loan is expected to be repaid from the proceeds of the asset sales.”
“We are working closely with the Federal Reserve, the SEC and other regulators to enhance the stability and orderliness of our financial markets and minimize the disruption to our economy,” said Treasury Secretary Henry Paulson. “I support the steps taken by the Federal Reserve tonight to assist AIG in continuing to meet its obligations, mitigate broader disruptions and at the same time protect the taxpayers.”
AIG’s official company statement is: “AIG is a solid company with over $1 trillion in assets and substantial equity, but it has been recently experiencing serious liquidity issues. We believe the loan, which is backed by profitable, well-capitalized operating subsidiaries with substantial value, will protect all AIG policyholders, address rating agency concerns and give AIG the time necessary to conduct asset sales on an orderly basis.”
“The failure of AIG could have caused unprecedented global ripple effects”, said Robert Bolton, managing director at Mendon Capital Advisors Corp. “If AIG fails and can’t make good on its obligations, forget it. It’s as big a wave as you’re going to see.”

AIG had a massive fluctuation in prices today amid rumors that they would follow Lehman Brothers, Fannie Mae and Freddie Mac in filing for bankruptcy.

The stocks closing price today was 3.95, with a high of 5.24 and a low of 1.84.

Since after hours trading began the stock has dropped to 47% to 2.08.

Editors Note: Update - AIG has been bailed out by the FED.

In the face of one of the most dramatic money crises that the United States has ever faced, the Dow Industrial still closed 141.51 points above yesterday.

All weekend we have heard rumors that AIG will join Lehman Brothers, Fannie Mae and Freddie Mac in the long line of moneylenders and investment firms that are both filing for bankruptcy and begging for federal bailout.

“All of the financials are in complete disarray. There is a tremendous amount of nervousness, which is breeding volatility,” said Anthony Conroy, head trader at BNY ConvergEx.

Fox News Reports:

“With the clock ticking on AIG, reports swirled of a possible government rescue of the world’s largest insurer. Bloomberg reported late Tuesday the Federal Reserve is considering a “loan package.” AIG was also boosted after new SEC filings showed its former CEO, Maurice “Hank” Greenberg, is considering a proxy fight for his old company. ”

“No bailout plan was announced before the end of trading and the Treasury Department has not officially changed its plans, leaving AIG in the same predicament it started the day in. Late Monday AIG suffered a major setback when major ratings agencies downgraded the insurer’s credit ratings, making it increasingly difficult to raise cash.”

AIG has officially filed for federal loans and support in this time, and have so far been denied. They claim to have a better case for bailout than either Freddie Mac or Fannie Mae, as their troubles stem not from over extending loans, but from the massive down turn in the economy.

Yesterday, former head of the FED Alan Greenspan referred to this as a “Once a century monetary crisis” further fueling the comparisons to the great depression that began in 1929.

“The enormous swings in the stock market reflect the level of concern and confusion on Wall Street about AIG. Various reports indicated if AIG didn’t raise new capital — it is reportedly seeking $70 billion to $75 billion — it would be forced to follow in the footsteps of Lehman Brothers by filing for bankruptcy.”

In it’s first unamyous decision in over a year, the Federal reserve has voted to freeze interest rates. As well as mandate that the Federal Funds Rate not change from it’s current 2%.

In one ray of bright light for the fininacials in trouble, the British bank Barclay’s has entered into an agreement with embattled Lehman Brothers to purchase control of their U.S. capitals market business, giving the giant some much needed capital. There is debate as to whether it will be enough.