The Treasury has agree to swap more than $49 billion of preferred shares in insurance giant AIG for 1.7 billion shares of AIG common stock, which it will sell over time at a pace designed to recoup their initial massive commitment to shore up the floundering company. (The Treasury performed a similar maneuver with its shares of Citigroup last year.) Before the swap goes into effect, AIG needs to clean its house by selling off some subsidiaries and making good on a loan from the Federal Reserve Bank of New York. If AIG is able to convince investors of its viability and future growth and the government can earn on its investment, they’ll no doubt tout this as a vindication for their aggressive actions during the 2008 crash. [WP]
