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ETFs: The real reason for the Fed’s AIG bailout

Today's Financial News - Posted September 17, 2008

“We can’t say we’re surprised. While workers at Lehman might feel somewhat aggrieved, it seems the Fed decided that AIG really was too big to fail.” — John Stepek

Blogger’s note: So why would the Fed bailout AIG after leaving Lehman Brothers hanging only days earlier? The real reason, according to John Stepek of the UK’s MoneyWeek, has more to do with ETFs and the insurer’s ability to back them than it does any “too big to fail” nonsense bandied about by the Fed. It seems AIG just has its fingers in too many pies to let it collapse. But don’t take my word for it. Read on below to learn why a failure at AIG could have delt the death blow to the U.S. economy.

by John Stepek

Baltimore and London — (TFN): It may have left interest rates on hold last night, but the Federal Reserve isn’t done dishing out money.

Just days after leaving Lehman Brothers (NYSE:LEH) to collapse, the Fed has ditched its concerns about moral hazard and stepped in to bailout insurance giant AIG (NYSE:AIG), to the tune of $85 billion.

We can’t say we’re surprised. While workers at Lehman might feel somewhat aggrieved, it seems the Fed decided that AIG really was too big to fail. “A disorderly failure of AIG could add to already significant levels of financial market fragility.”

So what’s happened – and what does this mean for the wider economy? Read on to learn the answer.

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Posted by John Stepek · Filed Under US Stocks and Markets 

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