Demise of the Dollar

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Treasury Said to Be Considering AIG Conservatorship (Update1)

By Craig Torres and Elizabeth Hester

Sept. 16 (Bloomberg) -- The U.S. Treasury is considering taking over American International Group Inc. under a conservatorship as one option to address the insurer's crisis, according to two people briefed on the discussions.

Executives from AIG, bankers and Treasury and Federal Reserve officials are meeting today on the company's situation at the New York Fed. A number of options are under being discussed to fill a shortfall of $75 billion to $100 billion in funding, one of the people said. The talks are continuing, he said.

Goldman Sachs Group Inc. and JPMorgan Chase & Co., which have been leading efforts to find a private-sector solution, informed the Fed that such an effort would be difficult, the person said. Under another option, the Fed would extend a loan to New York-based AIG, according to a person informed of the matter.

Treasury Secretary Henry Paulson earlier this month seized Fannie Mae and Freddie Mac and put them into conservatorships, where officials will oversee the firms and aim to protect their assets.

Treasury spokeswoman Michele Davis declined to comment. David Neustadt, a spokesman for New York State Insurance Superintendent Eric Dinallo, had no immediate comment.

To contact the reporters on this story: Elizabeth Hester in New York at [e-mail]; Craig Torres in Washington at [e-mail].

Last Updated: September 16, 2008 17:12 EDT