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New York officials helped giant insurer American International Group Inc. strike a historic loan deal with the Federal Reserve on Tuesday night to keep AIG afloat and avoid another fiscal crisis for the state.
Gov. David Paterson called it “great news” that will preserve jobs and, because of it, “our financial recovery will be easier, if not sooner.”
Paterson singled out his superintendent of insurance, Eric Dinallo, for helping preserve the opportunity for AIG to come to a deal with the federal bank. The state’s offer to help AIG reach into its subsidiaries to borrow $20 billion bought time for the larger deal. The $20 billion borrowing didn’t turn out to be necessary once the federal agreement was struck.
“Policy holders will be protected, jobs will be saved,” Paterson said Tuesday night.
Keeping AIG afloat protects thousands of employees and investors in New York who are tied to AIG’s troubles, the latest hit to the state’s financial outlook as Wall Street’s debacle unfolded this year.
Shares of AIG had fallen sharply as investors grew increasingly pessimistic on Tuesday that the company would find funding to avoid a liquidity crunch that could touch off even more global financial turmoil.
AIG’s uncertain future was just part of New York’s fiscal nightmare this week, after Wall Street was hit by losses unmatched since the Sept. 11, 2001, attacks.
“We probably lost a billion dollars yesterday,” Paterson said.
The Democratic governor said on CNBC that the stock market losses are sad for America, but especially damaging for New York. That’s because New York state government has come to depend on getting 20 percent of its revenues from Wall Street.
Paterson said the losses on Wall Street on Monday alone may have wiped out the $475 million in spending cuts approved this summer in a special session of the Legislature to avoid a state budget deficit this year.
“I don’t think the state had depleted its cushion for this year, but it makes next year go from bad to worse,” said E.J. McMahon, from the fiscally conservative Empire Center for New York State Policy. That will require the Legislature to cut spending further, and that would likely have to include school aid that has so far remained untouched.
“If there are still people around who thought maybe it would get better, this limited their bet,” McMahon said. “I’m sure there will be no shortage of people calling for increasing taxes, but only on the rich _ the people whose incomes are plummeting.”
Senate Democratic leader Malcolm Smith of Queens said another emergency economic session of the Legislature is needed “to protect New York’s place as the world’s financial capital.”