The U.S. government has seized control of insurance giant American International Group in an unprecedented $85 billion bailout. The Federal Reserve made the deal on Tuesday to save AIG from collapse in what the New York Times describes as “the most radical intervention in private business in the central bank’s history.”

The move to lend AIG up to $85 billion dollars for two years in exchange for nearly 80 percent of its stock effectively nationalizes one of the central institutions in the crisis that has swept through financial markets this month.

AIG found itself on the verge of bankruptcy largely because of complex securities that are tied to subprime home mortgages, and which plunged in value as the nation"s housing crisis deepened.

The bailout marks a turnaround by the Bush administration and the Fed who, just two days earlier, had refused to risk taxpayer money to prevent the collapse of Lehman Brothers or the distressed sale of Merrill Lynch to Bank of America. It also comes on the heels of a government bailout just over a week ago of mortgage giants Fannie Mae and Freddie Mac, and six months after the Fed bailed out Bear Stearns by helping to finance a sale to JP Morgan Chase.

The unprecedented run of events has altered the shape of Wall Street and brings the total amount of government rescue efforts to stabilize the financial system and housing market to about $900 billion dollars.

For more we are joined by two guests: Nomi Prins is a former investment banker turned journalist. She used to run the European analytics group at Bear Stearns and is now a senior fellow at Demos. She is the author of two books: “Other People’s Money: The Corporate Mugging of America” and “Jacked: How Conservatives Are Picking Your Pocket.”
Michael Hudson is the President of The Institute for the Study of Long-Term Economic Trends. He is an Economics Professor at the University of Missouri, Kansas City and author of “Super-Imperialism: The Economic Strategy of American Empire.” He also chief economic adviser to Congressmember Dennis Kucinich. We welcome you both to Democracy Now.

Nomi Prins, former investment banker turned journalist. She used to run the European analytics group at Bear Stearns and is now a senior fellow at Demos. She is the author of two books: Other People’s Money: The Corporate Mugging of America and Jacked: How Conservatives Are Picking Your Pocket.

Michael Hudson, President of the Institute for the Study of Long-Term Economic Trends, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and author of Super-Imperialism: The Economic Strategy of American Empire. He is the chief economic adviser to Rep. Dennis Kucinich.

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