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Friday, January 9, 2009

Fund Fed Charts: Credit Extended to American International Group

Definition:

WAIG: On September 16, 2008, the Federal Reserve announced that it would extend credit to the American International Group (AIG) under the authority of section 13(3) of the Federal Reserve Act. This secured lending will assist AIG in meeting its obligations as they come due and 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.

After the implosion of Lehman Brothers the Fed really lost their nerve and decided to bail out AIG. The bailout was strangely complex and stunningly large. Surprisingly AIG has actually managed to pay down a large portion of the $80 billion it borrowed from the Fed.

At the end of October AIG had actually borrowed at total of $89.5 billion. As of right now “only” $39.0 billion of the loan remains outstanding. Granted, the conditions of the loan were pretty harsh. With access to the TARP funds AIG probably just swapped out this “expensive” money for the cheaper kind.