Feds seize control of AIG

WASHINGTON, Sept. 17 (UPI) -- U.S. regulators seized control of the country's largest insurance company, ending its struggle to find enough capital to stay afloat.

The U.S. Federal Reserve announced late Tuesday it would loan American International Group $85 billion because "a disorderly failure of AIG could add to already significant levels of financial market fragility," the Fed said in a statement.

"The interests of taxpayers are protected by key terms of the loan," the Fed said.

The terms include the government absorbing a 79.9 percent stake in the company and the replacement of Chief Executive Officer Robert Willumstad with former Allstate Corp. CEO Edward Libby. The leadership switch was made at U.S. Treasury Secretary Henry Paulson Jr.'s insistence, Business Insurance reported.

Analysts had feared the collapse of AIG could provoke failures at many companies.

New York Gov. David Paterson said a collapse of AIG would be "catastrophic," MarketWatch reported.

"Read it as that it's important, I think, for us to maintain the stability and orderliness of our financial system," Paulson said Monday.

Global Insight Chief Financial Economist Brian Bethune said the takeover "forestalls to some extent the recent dangerous escalation of the crisis in the U.S. financial markets."