Each day, Benzinga takes a look back at a notable market-related moment that occurred on this date.

What Happened? On this day in 2008, American International Group Inc (NYSE:AIG) received an $85-billion bailout from the Federal Reserve.

Where The Market Was: The Dow Jones Industrial Average closed at 11,059.02 and the S&P 500 traded at 1,213.59.

What Else Was Going On In The World? In 2008, Illinois Governor Rod Blagojevich was arrested on federal corruption charges, including conspiracy to commit mail and wire fraud and solicitation of bribery. After 50 years as president of Cuba, Fidel Castro stepped down from the position. A U.S. postage stamp cost 42 cents.

AIG Bailout: Prior to 2008, insurance giant AIG had been a typical boring, profitable insurance company. AIG ran into big problems when it ramped up its credit default swap selling in an effort to boost margins. When the housing market tanked, those swaps pushed AIG to the brink of bankruptcy.

AIG had more than enough assets at the time to cover its obligations, but it was unable to sell enough assets before the swaps came due. Shareholders began to realize the company’s dire situation and began dumping the stock. On Sept. 15, 2008, AIG’s share price dropped 61%.

On Sept. 16, the Federal Reserve deemed AIG systemically important to the global financial system and provided the company with an $85-billion, two-year loan in exchange for a 79.9% equity stake in the company.

In November, the Fed restructured its AIG bailout and reduced the size of the total loan to $60 billion. At the same time, the U.S. Treasury purchased $40 billion in AIG preferred shares to provide the insurer with further liquidity. In April 2009, the Treasury committed another $29.64 billion to AIG, bringing the company’s federal bailout up to $182 billion.

At the time, many Americans were outraged about the government bailouts, but they proved profitable for taxpayers. The Treasury sold its final shares of AIG stock on Dec. 11, 2012. The Federal Reserve ultimately made a profit of about $5 billion from its AIG bailout, while the Treasury turned a profit of $17.7 billion on its AIG bailout.

Photo: David Shankbone, via Wikimedia Commons