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Markets Plunge After Government Adds Billions to AIG Rescue

Stocks tumbled after the government expanded aid to struggling insurer American International Group and the company reported a huge quarterly loss. Analysts examine what this could mean for the broader financial outlook.

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  • JIM LEHRER:

    American International Group — AIG, as it's called — reported huge new losses in its insurance business today. The announcement helped trigger a fourth round of government aid. It also helped push the stock market into another headlong retreat.

    Jeffrey Brown has our lead story report.

  • JEFFREY BROWN:

    The towering insurance giant began the day by reporting the largest quarterly loss in U.S. history, $61 billion for the final months of 2008. With that, the government announced a new rescue package, amounting to $30 billion. That's on top of $150 billion AIG has already received.

    Chief Executive Edward Liddy, who joined the company in September, spoke on CNBC.

  • EDWARD LIDDY, CEO, AIG:

    We are being consumed by the same issues that are driving house prices down, and 401(k) statements down, and Warren Buffett's investment portfolio down. Asset values are in a free fall around the globe.

    We're the largest insurer in the United States, one of the largest, arguably the largest in the world. We have a massive investment portfolio. All aspects of those assets are going down in value. When they go down in value, we take that decline through our P&L.

  • JEFFREY BROWN:

    The housing crisis triggered staggering losses at AIG, leading to the initial government rescue last September. The company was heavily involved in so-called credit default swaps, insuring mortgage-backed securities against default. Ultimately, AIG could not cover billions in swap insurance when that market collapsed.

    CEO Liddy said he hoped today's installment would be the last, but he offered no promises.

  • EDWARD LIDDY:

    I would like to say 100 percent yes to that, but it's difficult to do that. It really depends upon what happens to the capital markets from here. Let me just say, since September, we've made enormous progress.

  • JEFFREY BROWN:

    Administration officials defended today's action. White House press secretary Robert Gibbs.

    ROBERT GIBBS, White House press secretary: I wonder what we'd be talking about today if we let something like an AIG default on the massive amount of debt that it has and what that might do to the economy and to the markets.

  • JEFFREY BROWN:

    Some private analysts echoed the warning that major institutions would have to write off billions in assets insured by AIG if the company goes down.

    Just how precarious the system is was evident again today on Wall Street. The Dow Jones Industrial Average dropped 299 points, more than 4 percent, to close at 6,763, the first time it's finished below 7,000 since 1997. The Nasdaq fell 55 points to close at 1,322.

    The sell-off was also fueled by fears over major banks, after HSBC, Europe's largest bank, reported profits fell 70 percent last year.