Treasury Secretary Paulson was adamant that the U.S. would not bail out AIG and in an about face provided 85 billion dollars for a bailout. What a difference a day can make. Presidential candidates McCain and Obama were quoted on Monday, September 15th as agreeing with the Treasury that the U.S. Government should not provide the billions of dollars needed to keep the firm from collapsing.
However, the implications of the pending failure of AIG appeared to be so detrimental to the global markets the U.S. government felt it necessary to step in. Not only did the Federal Reserve provide an infusion of cash but the U.S. now has an equity stake of almost eighty percent in the global insurer. This is unprecedented and probably foreshadows more mergers or failures in the financial sector.
This uncertainty in the markets has investors running for cover as evidenced by the rise in bond prices caused by investors seeking a safe harbor from equities. Will taxpayers continue to foot the bill for Wall Street's financial meltdown? ...
Financial Industry in Turmoil
Wells Fargo, JPMorgan Chase, HSBC and other large banks have all reportedly been approached by regulators seeking someone to rescue Washington Mutual, which has been pounded by the slumping housing market and the subprime lending fallout.
Nick Ut, AP
Some are also speculating on which firm may be headed the way of Merrill Lynch or Lehman Brothers. Media reports have said that Morgan Stanley is pondering whether to remain independent and that it is in talks with Wachovia about a possible combination.
Mario Tama, Getty Images
A trader works on the floor of the New York Stock Exchange, Wednesday, after nervous investors yanked their money out of the stock market, sending the Dow down 450 points. The latest market plunge came after a late Tuesday announcement that the government would bail out ailing insurer AIG. "People are scared to death," one investment strategist said.
Richard Drew, AP
The AIG bailout marked the second time this month that the government put taxpayer money on the hook to rescue a private financial company. In exchange for a 2-year $85 billion loan from the Federal Reserve, the government will receive a 79.9 percent equity stake in the company.
Mark Lennihan, AP
Former Allstate chairman and CEO Edward Liddy, left, is expected to replace AIG's Robert B. Willumstad. Willumstad, a former Citigroup executive, had been at the helm of AIG since June.
AP (2)
AIG, whose shares had been on a freefall, had been on the hunt for cash to shore up its balance sheet. The Fed determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.
Richard Drew, AP
The U.S. government became one of the biggest players in the nation's mortgage market last week when it took control of mortgage finance giants Fannie Mae and Freddie Mac. The two financial institutions, battered by plunging share prices, rising foreclosures and sinking home values, owned or guaranteed about half of U.S. mortgage debt.
AP (2)
The decision to help AIG marked a reversal for the government from the weekend, when it refused to use taxpayer money to bail out Lehman Brothers. The investment bank was forced to file for Chapter 11 bankruptcy protection Monday.
Jin Lee, AP
For many of Lehman's 26,000 employees, the outlook is likely to be gloomy with job losses expected to be substantial even if significant parts of the business can be sold. On Sunday night hundreds of Lehman employees were seen clearing their desks and packing personal belongings.
David Karp, AP
Last week, after posting $3.9 billion in losses, Lehman CEO Richard Fuld outlined a plan to sell and spin off assets to raise money. Fuld, 62, who joined the company right out of college, is the longest serving CEO on Wall Street.
Kevin Wolf, AP
