Stocks Fall Despite AIG Bailout

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Wall Street took another nosedive Wednesday as investors' worries increased over economic turmoil, desipite the government's bailout of insurer American International Group Inc.

The Dow Jones ended down 447 points at the 10,612 level, as the market's losses kept pace with Monday's dive.

This week's Wall Street rollercoast ride began Monday morning with two major financial giants failing. But the Fed stepped in late Tuesday to prevent another U.S. financial giant from going under. This time: AIG -- the world's largest insurer -- which now has an $85 billion lifeline.

But questions remain over how best to handle the ongoing crisis on Wall Street.

The government stood by over the weekend as Lehman Brothers went belly up. But AIG was just too important to let fail.

Officials say the two-year, $85 billion loan to the world's largest insurer will help stave off a financial disaster. The Federal Reserve had insisted that no more taxpayer dollars would be used to save failing Wall Street companies.

"When you look at the tentacles of AIG, how far it stretches around our country, into the home, into the small business, into the car, into the individual, then as a government you must take some kind of action," said New York Gov. David Paterson.

Analysts say AIG fell into the same trap that brought down Lehman Brothers and other financial giants in recent months.

"What AIG also does is a lot of the things that got Lehman Brothers in trouble they do a lot of guaranteeing mortgages and insuring sub-prime mortgages and that part of the business is just killing them right now. They have had billions of losses," said Aaron Elstein with Crain's NY Business.

Some economists say AIG is getting exactly what it deserves for making risky moves in the housing market -- and that the government should not step in to help.

"We should be focusing on the real parts of the economy: helping poor people stay in their homes, managing growth, stimulating the economy. The real part of the economy. Not this financial sector that's brought us into this mess," said Joseph Stiglitz with Columbia University.

Meanwhile, the presidential candidates are jockeying to get out in front of the financial crisis. Barack Obama dismissed John McCain's suggestion of a high-level commission to study America's economic woes.

"Here's the thing: this isn't 9/11. We know how we got into this mess. What we need now is leadership that gets us out," Obama said.

McCain says the fundamentals of the U.S. economy are strong -- he laid the current financial crisis at Wall Street's doorstep.

"This foundation of our economy, the American worker, is strong. But it has been put at risk by the greed and mismanagement of Wall Street and Washington," McCain said.

House speaker Nancy Pelosi is calling for a broad investigation of Wall Street to determine what went wrong.

She'll demand testimony from Bush administration officials and financial leaders. Republicans say Democrats are using the crisis for political gain

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Erick Stakelbeck

Erick Stakelbeck

CBN News Reporter

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