Washington – The federal government’s stake in American International Group Inc. (AIG) was expanded yesterday as the New York insurer asked for another $38 billion in cash. The Federal Reserve quickly agreed, and will hold as collateral $38 billion of investment-grade securities owned by AIG.

An AIG spokesperson said last week that it had already drawn $61 billion from the $85 billion line already extended by the central bank on Sept. 16. That action was not directly related to insurance operations, said an industry expert, but the new request for cash will support AIG’s life insurance companies. Because the loan will be collateralized by corporate bonds, the government considers this loan less risky than that for the previous $85 billion.

"This new program will allow AIG to replenish liquidity ... while providing enhanced credit protection to the New York Fed and U.S. taxpayers in the form of a security interest in these securities," according to the announcement from the Federal Reserve Board.

The latest loan comes a day after irate lawmakers upbraided AIG during a House hearing for its spending habits, which include high consultant fees and a life agent meeting held at a pricey resort.

Sources: Wall Street Journal, Washington Post

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