The revised bailout of American International Group Inc. marks a new phase in the government’s effort to shore up financial markets: It’s the first time cash from the rescue fund Congress created last month has been committed to a failing company.
The Federal Reserve, which saved the insurer from collapse two months ago with an $85 billion loan, on Monday reduced that loan and offered lower rates, while the Treasury chipped in $40 billion from its bank-rescue fund to buy preferred shares. The new terms represent a departure for Secretary Henry Paulson, who until now has said he only wants to invest Treasury funds in “healthy” firms.
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