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A woman left an American International Group office yesterday in New York. The Federal Reserve rescued the struggling company yesterday with an $85 billion bailout loan.

AIG gets $85B loan

The Federal Reserve reverses course in putting taxpayer money at risk

» Government’s bailout expected to soothe troubled isle waters

WASHINGTON » The U.S. government stepped in yesterday to rescue American International Group Inc., one of the world's largest insurers, with an $85 billion injection of taxpayer money.

Federal Government Bails Out AIG

The American Internation Group has struck a deal with the federal government that aims to save the troubled company from bankruptcy.

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The Federal Reserve said yesterday it would provide up to $85 billion in an emergency, two-year loan to rescue AIG, which teetered on the edge of failure because of stresses caused by the collapse of the subprime mortgage market and the credit crunch that ensued. In return, the government will get a 79.9 percent stake in AIG and the right to remove senior management.

But the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by AIG and other institutions it does business with.

The decision was a remarkable turnaround by the Bush administration and Treasury Secretary Henry Paulson Jr., who had flatly refused over the weekend to risk taxpayer money to prevent the collapse of Lehman Brothers or the distressed sale of Merrill Lynch to Bank of America.