Last night this news was announced by New York’s Governor David Patterson. Read more at the New York Times and everywhere else.

WASHINGTON — Fearing a financial crisis worldwide, the Federal Reserve
reversed course on Tuesday and agreed to an $85 billion bailout that
would give the government control of the troubled insurance giant American International Group.

The decision, only two weeks after the Treasury took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank’s history.

With time running out after A.I.G. failed to get a bank loan to avoid bankruptcy, Treasury Secretary Henry M. Paulson Jr. and the Fed chairman, Ben S. Bernanke,
convened a meeting with House and Senate leaders on Capitol Hill about
6:30 p.m. Tuesday to explain the rescue plan. They emerged just after
7:30 p.m. with Mr. Paulson and Mr. Bernanke looking grim, but with top
lawmakers initially expressing support for the plan. But the bailout is
likely to prove controversial, because it effectively puts taxpayer
money at risk while protecting bad investments made by A.I.G. and other
institutions it does business with.