Remember the “profit” that the taxpayers were supposed to make off of AIG’s bailout loan? This was because the government was charging a decently high interest rate and AIG had to pay that interest on the entire loan amount of $85 billion instead of taking the loan in installments.

Well, two things went wrong… 1) Within weeks, we increased the size of their loan by another $37 billion. 2) They are now renegotiating the terms with us to give them a more favorable interest rate…

Remember your first mortgage? How do you think your bank would have responded if you walked in a month after closing and said, “Hey… I’m having trouble repaying this loan you just gave me… How do you feel about dropping my interest rate and maybe doubling how long I have to pay this back? Here, I’ll give you some of my worthless paper as ‘collateral’.”

For some reason, the taxpayers have just unwittingly become a pushover banking institution. Welcome to the USSA, comrades…

The initial credit line has a two-year term, carrying a steep interest rate. AIG also had to grant the government warrants for a nearly 80 percent stake in the company.

As of November 5, the insurer owed $81.2 billion — $61.3 billion under the $85 billion credit facility, and $19.9 billion under a subsequent $37.8 billion securities lending agreement.

The terms being discussed include a reduction in the interest rate and increasing the term of the existing loan, which could be extended to five years, the source said. Currently the loan carries an interest rate of 8.5 percent over the London Interbank Offered Rate, which sets the cost of borrowing between banks.

An equity injection through preferred shares may also come with a reduction in the size of the $85 billion facility, the source said.

(Read the full Reuters article here)