WASHINGTON AND LOS ANGELES — The government gave ailing insurer American International Group Inc. $30 billion more in loans Monday, renewing doubts about the effectiveness of federal bailouts and triggering another avalanche on Wall Street that pushed the Dow index below 7,000 for the first time in a dozen years.
U.S. Treasury and Federal Reserve officials also eased conditions on terms from some of the three earlier attempts to prop up the giant company, which also reported a staggering quarterly loss of $61.7 billion on Monday.
The latest effort to bolster AIG and continued problems at other financial giants such as Bank of America Corp. and Citigroup Inc. -- along with a slew of gloomy economic forecasts recently -- had led many investors to question whether the government's efforts to rescue the financial system were working, analysts said.
"We've reached the point of disgust with Washington," said Peter Boockvar, equity strategist at New York brokerage house Miller Tabak & Co. "Every day there's a new plan, and every day there's a new bailout. I think bailout fatigue is gripping the market."
The Dow Jones index of 30 blue-chip stocks dropped nearly 300 points Monday to 6,763.29, the first time the widely watched gauge has fallen below 7,000 in nearly 12 years. In January and February, the Dow fell almost 20% -- the worst first two months of the year in its 113-year history.
The financial crisis has made it increasingly dangerous to let AIG fail because its tentacles continue to extend throughout the global financial system. Therefore, its implosion could set off a chain reaction of failures at banks and other institutions worldwide.
On Monday, stocks across Europe suffered their biggest losses since December in the wake of AIG's news, along with the refusal of West European nations to provide new financial support to the struggling East. Investors also took note of financier Warren Buffett's statement that the U.S. economy was in a "shambles."
The changes made to AIG's loan terms recognized a painful reality. Though the initial pact called for selling off pieces of the company to repay federal loans, the credit crisis has made it difficult for potential buyers to raise the cash necessary for purchases.
The government still considers AIG too big to fail. As a result, the White House decided that the $150-billion commitment already made -- the largest financial infusion to date -- was not too big to get bigger.
