Ailing AIG Gets a Another Shot of Vaccinating Equity Courtesy of You.

According to the WSJ Online, a deal was negotiated late Sunday, the government will be replacing the bailout for AIG from $123 billion with a $150 billion package. AIG had already received $87 billion in September and another $37.8 billion in November; however, the shot of liquidity did not have much effect on the ailing insurer.

Under the new plan AIG would collect a $60 billion loan, a $40 billion preferred-stock investment and $50 billion in capital to buy up bad or troubled finances and then place them into two separate financial institutions. This is a dramatic shift in tactics for the Treasury Department, they are now concerned with injecting equity into companies they are assisting vice buying up their toxic assets and RMBS’s (Residential Mortgage Backed Securities).

Under the original bailout plan, AIG would have been required to sell of assets and resources with a declining stock market while paying precipitous interest rates on the $85 billion dollar loan. With this restructuring the original loan of $85 billion from the Fed, which was due in two years, will be replaced with a $60 billion loan due in five. In addition, the interest rate will be lowered from the original 8.5% to 3%.

The Fed will also use $40 billion from the Troubled Asset Relief Program (Bailout Bill), to buy up preferred stock in the company. There would be an annual 10% return on those shares but government equity within AIG would remain at 79.9%.

Essentially the government is hoping the idea of equity investment within AIG will yield more of a return to them and the taxpayer over the long run. While this is applying, free market thinking to nationalization of a private institution, it was a result of shareholder concerns for the future of AIG. Wouldn’t it be nice if you could go to the bank and restructure you housing loan; get more money and lower interest rates instead of getting your home repossessed?