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NEW YORK CITY-As GlobeSt.com mentioned earlier, American International Group had been working on a company restructuring, and now, Gov. David Paterson revealed a multi-billion dollar financing plan to stabilize AIG at no cost to New York taxpayers. The plan calls for AIG to transfer some assets to provide necessary cash for short-term liquidity, a move that requires regulatory oversight approval from the New York Insurance Department.

AIG will undertake a series of transactions that are expected to raise about $20 billion, solving the company’s immediate cash liquidity problem. Additionally, Gov. Paterson has sent Insurance Superintendent Eric Dinallo to work with the Federal Reserve on a plan to help AIG.

“Wall Street’s continuing problems should serve as a stark reminder that this recession is far from over,” Gov. Paterson says in a prepared statement. “New York State has taken the first step towards helping to stabilize AIG, which is otherwise a very healthy company.”

He continues that “on a state level, we were able to reach a market-based solution that will stabilize AIG at no cost to New York taxpayers. Policyholders should also know that they are safe, and their insurance policies are still good. AIG’S insurance companies are financially strong, and the Insurance Department will continue to ensure that they remain strong.”

These transactions will protect the company’s policyholders, which is a pre-condition of the Insurance Department’s approval. Additionally, the Insurance Department will continue to closely monitor AIG to ensure it has the assets to pay claims. Dinallo says in a prepared statement that “under Gov. Paterson’s direction, we are working closely with AIG to craft a transaction that will stabilize an important New York insurance company, while protecting policyholders. This continues our work with the bond insurers where the State proactively produced market-based commercial solutions. We will continue to implement the Governor’s program of creative and pragmatic regulation that promotes growth while protecting policy holders and consumers.”

AIG currently has more than 100,000 employees and in New York State, AIG has 8,500 employees who earn an annual payroll of $897 million. On Monday, AIG shares slumped 42%.

Gov. Paterson also discussed the bankruptcy of Lehman Brothers, noting that it is not only troubling news for Wall Street, but also potentially for the State budget. “We are currently assessing the situation within the financial markets, and taxpayers should know we will take whatever actions are needed to protect the State’s finances and the health of New York’s economy. Furthermore, our debt portfolio and strong credit rating should remain unaffected.”

The governor continues that clearly, we are entering uncharted waters. “Of the five largest, independent investment banks, only two are left standing today: Goldman Sachs and Morgan Stanley. Bear Stearns and Lehman Brothers have both collapsed, and Merrill Lynch has been subsumed into Bank of America.”

Gov. Paterson notes that Bear Stearns, Lehman, and Merrill Lynch, had nearly 30,000 employees in New York and paid roughly 10% of Wall Street wages, and approximately 15% of all Wall Street bonuses. “Twenty percent of State revenue is derived from Wall Street. While the full impact of these events may not be known for months or even years, the fact that financial services firms that were able to survive the Great Depression, world wars, and the September 11th attacks collapsed under the weight of the current financial crisis is cause for grave concern. While New York State has already made significant reductions to its revenue forecast by $2.3 billion for the current fiscal year, there are risks going forward.”

An anonymous source told GlobeSt.com–prior to the financing plan announcement—that it was hard to believe that names like AIG are out there as being in trouble. The source explained that perhaps if Lehman Brothers, for example, had been at this point before the Bear Stearns situation, the government might have been more actively looking to assist Lehman. “AIG might be the ones that waited too long,” the source said. “While they have been aggressively taking steps lately, they may have waited too long, at least as perceived by the marketplace.”

The source continued that “perception is a large issue, and this is more than a crisis of confidence.” Many analysts were of the opinion that Lehman could not handle all of its liabilities, the source explained. “Things could get much worse. Until the write-offs stop, this credit crunch and crisis of confidence will continue. When the lenders start funding each other, the crisis will be over. Right now, there is such concern with capital adequacy, this is not happening. Events like Lehman only serve to lengthen the period of the crisis.”

The division of budget will release its full mid-year update to the State financial plan in October with revised revenue and spending forecasts “that reflect recent events within the financial services world, we will continue to closely monitor the situation and update the public regularly as more information becomes available.”

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