Fed agrees to bail out AIG

The Federal Reserve agreed to bail out American International Group on Tuesday night, giving the insurance giant $85 billion. AIG provided a large number of esoteric financial insurance contracts to investors who bought complex debt securities, leaving them to cover billions of dollars’ worth of risky securities that were once considered safe. The Federal Reserve and Treasury were afraid that if AIG collapsed, institutional investors around the world would have to reappraise the value of debt securities, which would reduce their own capital and debt value.