It is fitting that the first institutions to be formally nationalised in this crisis
were not banks in the traditional sense, but institutions (Fannie and Freddie,
AIG), which were supposed to play only a supporting role in the financial
system.
Formally, the AIG operation is composed of two separate elements: the Federal
Reserve of New York has been “authorized to lend” AIG up to US$ 85 billion.
At the same time, however, the US Treasury is taking control of AIG, of which it
will own 80%, thereby immediately changing its management. The Federal
Reserve is thus providing financing to the US government. The punitive terms
(850 bps above LIBOR) agreed for the loan to AIG are irrelevant as any interest
payments would merely go from the left to the right hand pocket of the
government