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Fed Aims to Stabilize Markets as Jittery Investors Watch AIG

With the financial industry still reeling from Monday's collapse of key institutions, the Federal Reserve pumped another $70 billion into the teetering system Tuesday. Two business journalists discuss the Fed's relief efforts.

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    It was another anxious day on Wall Street. After Monday's Lehman Brothers bankruptcy and the sale of Merrill Lynch, concern shifted to whether the credit crisis might claim an even larger victim.

    The insurance giant American International Group, or AIG, saw its stock price sink further after agencies slashed its credit rating last night. That sent AIG scrambling to raise tens of billions of dollars in new cash to shore up its position, as Wall Street watched nervously.

    GOV. DAVID PATERSON (D), New York: I have directed our superintendent of…


    New York Gov. David Paterson, who yesterday authorized AIG subsidiaries to loan its parent company $20 billion, said this morning that the company could survive only one day without additional financing.

    There was other bad news. The investment bank Goldman Sachs, which has been involved in industry efforts to save AIG, reported third-quarter profits 70 percent lower than last year.

    And the nation's largest savings and loan, Seattle-based Washington Mutual, had its bond ratings slashed to junk status amid concerns over its mortgage-related losses.

    Yet, after dropping more than 500 points yesterday, the stock market today seesawed between negative and positive territory, even after the Federal Reserve declined to cut a key interest rate.

    In Washington, Treasury Undersecretary David McCormick said righting the financial markets long term depends heavily on stabilizing the housing industry.

    DAVID MCCORMICK, Undersecretary of the Treasury: The sooner we turn the corner on housing, the sooner we will see house prices stabilize, the sooner we will see more people buying homes, and the sooner housing will again contribute to economic growth. Still, it will take some time to work through these stresses.


    Late in the afternoon, it was reported that the Federal Reserve was considering extending a bridge loan to AIG.

    Senate Banking Committee Chairman Democrat Christopher Dodd was asked whether he'd support such a move.

    SEN. CHRIS DODD (D), Connecticut: I don't think anything is too big not to be able to fail, that notion, but I don't have that — apply that across the board in every fact situation.

    Tell me why this situation deserves that kind of infusion of support, whereas Lehman Brothers did not. I'm willing to listen. I'm skeptical, I'll tell you quite candidly, but I'm willing to listen.

    But I want to have them come to me as they're thinking about it, not announcing it and expect us to necessarily go along with it.


    The day on Wall Street ended with the Dow up more than 140 points.

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