The Federal Reserve has decided to provide insurance major AIG (American International Group) with a loan of up to $37.8 billion. Under the pact, the Federal Reserve Bank of New York will borrow up to $37.8bn in investment-grade, fixed income securities from AIG in return for cash collateral. According to AIG source the pact will help AIG secure funds on an as-needed basis.

 

Factually, the securities which Federal Reserve Bank of New York will buy from AIG were previously lent by AIG's insurance company subsidiaries to third parties. According to Chief Executive Edward Liddy as of Sept. 30, AIG had drawn $61bn on the credit facility. AIG's $54bn has gone toward its securities lending and AIG's financial products area.

 

The grant to AIG is coming at a time when lawmakers have put questions on the recent expensive retreat at California. Lawmakers are enraged that AIG spent $440,000 on the retreat, complete with spa treatments, banquets and golf outings. Commenting on the expensive retreat, White House press secretary Dana Perino said that it is despicable.