Another one bits the dust!

Okay, maybe that’s a little dramatic, or at least a little harsh, but AIG (American International Group) after teetering on the brink of bankruptcy has instead received a costly government bailout.  The federal government is going to lend AIG $85 billion in exchange for 79.9% of an equity stake.  The loan will be for two years and the interest will be around 11.4%!  This is partially to make the loan hurt so much for AIG that they will be strongly motivated to begin a massive asset sale program. 

According to CNBC, investors in AIG stock have been in serious trouble for a while now and the news of the government’s 79.9% equity status only further dilutes shareholders shares.  CNBC also stated that AIG shares fell as much as 48% within the hours after the bailout reports were released only further sinking the DOW and the hopes that AIG investors had held on to in recent weeks and months. 

          This move, opposed to AIG declaring bankruptcy, is hoped to promote stability and reduce damages to our economy because of AIG’s diverse influence on financial sectors including retail financial products, such as insurance and guaranteed annuities.  The government’s decision to bail out yet another private company comes with mixed reviews but, we must look at the larger financial picture before casting any judgments.  If AIG really has its hand in as many financial sectors as much data suggests, this was a very wise move on the government’s part.