Can you believe it? Less than 3 days after the federal government let Lehman Brothers (LEH) die on the vine, the U.S. government rushed to the rescue of insurance giant AIG (AIG), after JUST SAYING SUNDAY THAT IT WOULDN'T!!
While deets are still being worked out, it appears the Fed will provide a massive 'bridge' loan to AIG and in turn will take a huge stake in the company. That's right: the U.S. government will be in charge of an insurance company. This after just, in essence, taking control of crumbling mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE).
The dirt is that an AIG bankruptcy would have caused massive gyrations in the global financial world. (That's what they said about an outright failure of Bear Stearns, remember?)
Expect some people to be livid, among them, Lehman Bros. employees who watched as Paulson pulled back the life-raft saying, in essence, Sorry, Charlie, we're done with saving you people. But watch out for frustrated politicians. In fact, just today in the 2pm hour of Fox Business, Senator Jim Bunning (R-Kentucky) was seriously unhappy with the thought that Paulson might consider saving AIG. Watch the interview, especially the last question where David and I pressed him on what, if given the chance, he'd say to Treasury and Company about the idea of an AIG rescue.