For all the talk of nationalization, the AIG deal is a bit odd. The government didn't "buy" the company. It advanced an $85 billion loan that is collateralized through most all of AIG's assets and includes a 79.9% equity stake -- which is to say, control of the company. This shape of the deal gets to questions about how the Reserve could do this absent congressional authorization. The Federal Reserve doesn't have the power to buy AIG. In general, they don't even have the power to loan to AIG, as it's not a bank. But they do, through Section 13(3) of the Federal Reserve Act, have the power to lend to “any individual, partnership or corporation” in “unusual and exigent circumstance” provided the borrower “is unable to secure adequate credit accommodations from other banking institutions.” (There's an interesting history of that clause here.) All these standards were met. AIG spent the last few days trying to raise $75 billion through private channels. They failed (which suggests this is not exactly a safe bet for taxpayers). Their collapse would have defined "unusual and exigent" circumstances. And so the Federal Reserve made the loan. And it's not a friendly loan. As the Wall Street Journal says, "AIG may be able to survive, but it must repay the $85 billion loan at credit-card-like interest rates (8.5 percentage points over Libor, currently about 11%), liquidation even of performing assets is in the cards and top management is on its way out the door." But the Federal Reserve knew that the political system would reject an $85 billion bailout if it didn't come with appropriate oversight and regulations. Congress is already restive at having virtually no role in this crisis and seeing policy dictated by the Federal Reserve. Additionally, there are broad concerns that these bailouts are creating a moral hazard problem, in which insufficient pain is being inflicted on the wounded companies So rather than a simple bailout, the government demanded control of the company. That ends the careers of the executives, gives the government the ability to sell off AIG's assets (which everyone expects to happen, and quickly), and creates full oversight in the absence of any new regulations. That said, I doubt this state of affairs will remain for long. The loan has a two-year timeframe, and my assumption is that, if it's paid back, the government will divest itself of the company, though I've not seen anyone say that explicitly.
