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SEPTEMBER : THE BAILOUT OF AIG 

approval from the NYSID, the subsidiaries would “upstream”  billion to the parent
company, and the parent company would get access to bridge financing from the Fed.
Then, Allianz would take control of AIG almost immediately. Flowers said that he was
surprised by AIG’s unwillingness to negotiate. “I’m not saying it would have worked or
that it was perfect as written, but it was astounding to me that given what happened,

nobody bothered to check this [deal] out,” he said. Willumstad referred to the Flowers
deal as a “so-called offer”—he did not consider it to be a “serious effort,” and so it was
“dismissed immediately.” With respect to the other potential investors AIG spoke with
over the weekend, Willumstad said that negotiations were unsuccessful because every
potential deal would have required government assistance—something Willumstad
had been assured by the “highest levels” would not be forthcoming. 
On Monday morning—after Lehman had declared bankruptcy, and with no pri-
vate-sector solution on the horizon—the Fed initiated an effort to have JP Morgan and
Goldman Sachs assemble a syndicate of banks to lend about  billion to keep AIG

afloat. In the afternoon, the rating agencies announced their assessments, which
were even worse than expected. All three rating agencies announced downgrades of
AIG: S&P by three notches to A-, and Moody’s and Fitch by two notches to A and A,
respectively. The downgrades triggered an additional  billion in cash collateral
calls on AIG Financial Products’ credit default swaps. Goldman Sachs alone requested

. billion. Demands hit  billion, and AIG’s payouts increased to . billion. 
The company’s stock plummeted  to . from the closing price of . the
previous Friday—a fraction of its all-time high of ..
The syndicate of banks did not agree on a deal, despite the expectations of Fed of-
ficials. “Once Lehman filed [for bankruptcy] on the morning of the th, everyone
decided that, ‘we’ve got to protect our own balance sheet,’ and the banks that were go-
ing to provide the  billion decided that they were not going to,” Baxter told the

FCIC. Sarah Dahlgren, a senior New York Fed official, agreed with Baxter. Lehman’s
bankruptcy “was the end of the private-sector solution,” she told the Commission. 
After the markets closed, AIG informed the New York Fed it was unable to access

the short-term commercial paper market. Regulators spent the next several hours
preparing for a late-night teleconference with Geithner. The “Lead point,” according
to an email circulated to the Fed’s AIG monitoring group, was that “the size, name,
franchise and market presence (wholesale and retail) [of AIG] raise questions about

potential worldwide contagion, should this franchise become impaired.” Late that
night, for the second time since the beginning of the crisis, the Federal Reserve Board
invoked section () of the Federal Reserve Act to bail out a company. As it had
done for Bear Stearns, the New York Fed, with the support of the Treasury, would
rescue a brand-name financial institution.
The Federal Open Market Committee was briefed about AIG. Members were told
that AIG faced a liquidity crisis but that it was unclear if there were also solvency is-
sues. In addition, the staff noted that money market funds had even broader expo-
sure to AIG than to Lehman and that the parent company could run out of money
quite soon, even within days. 