Reposted one, the original poster read it slowly September 18, 2008 13:31 For three hours on Tuesday night, the board of directors of American International Group (AIG) has been painfully weighing the conditions proposed by the federal government: the government agreed to provide AIG with 850

billion in loans, but the insurance giant must cede control.

The plan shocked AIG's directors, with some calling it an "overwhelming" proposal.

They were surprised by the government order to replace Chief Executive Robert Willumstad and complained about what they saw as a heavy hand by Washington.

One director said he felt offended.

Martin Feldstein, an AIG director and former economic adviser to President Ronald Reagan, said it is not the government's job to acquire private companies.

As the board debates whether to file for bankruptcy - a move that could trigger chaos in global financial markets - Werenstein laid out AIG's current dilemma.

According to people who attended the meeting, Wehrenstein told the board that we face two terrible choices: Either file for bankruptcy tomorrow morning or accept the Federal Reserve's agreement tonight.

At 7:50 p.m. on Tuesday, Wehrenstein called to accept the deal.

What follows, based largely on interviews with Wall Street bankers and lawyers, AIG executives and government officials, shows how the storm that hit Wall Street last weekend swept through the U.S. financial system and engulfed the nation's largest bank on Tuesday.

Insurance company's.

It's unclear where the havoc will stop.

In these volatile market days, we've seen the U.S. government take over AIG and the two mortgage giants, Fannie Mae and Freddie Mac, rushing into deals with little due diligence.

Lehman Brothers and Merrill Lynch & Co., two long-established Wall Street investment banks, no longer exist as independent entities.

As the AIG case shows, even the largest companies can collapse quickly.

Until earlier this week, none of the parties had mentioned the idea of ??a government takeover.

U.S. Treasury Secretary Henry Paulson told bankers considering financing for AIG on Sunday that government officials don't yet know the extent of the problem.

By Tuesday, there was still no financing from the private sector, and federal officials determined that the risk of letting AIG go bankrupt might be more than what weak financial markets could bear.

But this latest rescue package has triggered unusually fierce opposition in the U.S. Congress, with lawmakers worried that the crisis is spiraling out of control and questioning where the federal government will extend its tentacles next.

Insurance giant AIG has operations in 130 countries around the world and its history can be traced back to 1919.

Few other companies can match AIG's strength under former CEO Maurice R. 'Hank' Greenberg for nearly four decades.

AIG sells annuities to teachers in West Virginia, liability insurance to America's largest corporations, workers' insurance to restaurants, and its business network reaches as far as Jhalawar, India.

In many ways, AIG remains in solid shape.

The company's problems stem primarily from a subsidiary that sells credit default swaps (CDS).

This financial derivative product is designed to protect investors from default losses on a variety of assets, including subprime mortgages.

As this unit suffered a huge loss of $18 billion, AIG had to add billions of dollars worth of collateral, causing the company's finances to be tight.

The downgrade of its credit rating and continued pressure on its stock price have worsened AIG's already weak situation.

Willenstein became CEO of AIG on June 15 after passing out the CEO job at Citigroup.

He assured the AIG board of directors that it would work out a restructuring plan before Labor Day and decide whether to keep the company's business.

But this plan was ruthlessly stifled by the financial crisis.

In early September, after unveiling billions of dollars in subprime mortgage-related debt, Willenstein determined that AIG must raise capital quickly.

He told J.P. Morgan Chase & Co. Chief Executive Jamie Dimon that the holes we have to close are too big and we need to raise capital.

The two men had worked together at Citigroup.

Last week, AIG's crisis worsened.

The company had tried to announce its business recovery plan on September 25 as originally planned.

But its stock price plummeted 31% on Friday and Standard & Poor's issued a downgrade warning, making AIG's fundraising efforts more difficult.