The original AIG bailout consisted of an $85-billion emergency line of credit established in September, supplemented by $37.8 billion more early last month. The goal was to stabilize AIG so that it could sell some of its numerous assets throughout the financial system and stave off bankruptcy.
But instead of becoming more stable, the company slid deeper into trouble. The company on Monday reported a third-quarter loss of $24.5 billion.
"They're shooting at a moving target," Ikenson said.
The Treasury Department worked in conjunction with the Federal Reserve to retool the AIG bailout "to keep the company strong and facilitate its ability to complete its restructuring process successfully," according to the Fed.
In a complex series of moves, the Treasury will buy $40 billion in newly issued preferred AIG stock, allowing the Federal Reserve to reduce the original $85-billion line of credit to $60 billion.
The Fed also will purchase $22.5 billion in residential mortgage-backed securities owned by AIG, and an additional $30 billion in collateralized debt obligations that AIG has insured. As part of the government's equity stake, AIG must agree to comply with restrictions on executive compensation and so-called golden-parachute severance packages.
"We recognize that the financial system remains fragile, and we continue to stand ready to prevent systemic failures," Kashkari said.
But expanding the universe of companies and industries the government is trying to rescue might mean Congress would need to pony up more money.
"They'll get up to $700 billion probably pretty quickly," Yeager said.
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jim.puzzanghera@latimes.com
