New York Gov. David Paterson today agreed to allow American International Group to transfer up to $20 billion in high-quality assets from its insurance company subsidiaries to the parent company, as the huge international carrier struggled to regain the confidence of investors and avoid a potentially devastating rating downgrade.

Meanwhile, the Federal Reserve Board today reportedly asked Goldman Sachs and J.P. Morgan to help arranging up to $75 billion in loans to AIG, to help the beleaguered insurer raise cash to satisfy rating agencies about its solvency. A New York regulatory source familiar with the decision confirmed the higher number late this afternoon.

The decision came following a noon meeting between AIG, New York state insurance regulators and representatives of the Treasury Department at the offices of the New York Fed.

Earlier, in a noon press conference, Gov. Paterson said he acted after the company approached the state for help. He said that state government officials have been working closely with the firm since the weekend as it struggled to deal with the warning of a potentially disastrous ratings downgrade from Standard & Poor's.

"AIG still remains financially sound," Gov. Paterson said.

The governor's announcement seemed to stop the precipitous decline in AIG's stock for a short time. The stock had dropped to as low as below $4 before noon, but was selling at $6.40 at 1:30 p.m. The stock closed today at $4.76, down 60.8 percent.

The stock closed Friday at $12.14 a share, a decline of 46 percent for the week.

Under a headline, "the strength to be there," AIG's commercial insurance unit issued a document to agents and brokers saying that the challenges facing AIG's parent company do not impact AIG Commercial's capital position. It adds that the "liquidity of AIG Commercial Insurance remains very strong ..."

In the meantime, the company is also reportedly seeking to raise cash by selling assets. Among these are its highly profitable leasing subsidiary, which has been valued as high as $50 billion, and its much smaller auto financing unit.

CNBC reported in a noon broadcast that AIG has been talking with Warren Buffett about a potential investment in AIG.

In addition, over the weekend, AIG held talks with venture capital firms, including J.C. Flowers Associates, but couldn't come to terms on a deal.

Gov. Paterson was very vocal in supporting AIG's earlier request for a $40 billion bridge loan from the Federal Reserve while it raised more liquid capital to meet S&P's demands for up to $14 billion in additional cash to avert a ratings downgrade.

In his press conference, Gov. Paterson was also highly critical of federal regulators and voiced concern about the cost of the continuing housing loan crisis on the state. Specifically, he noted that three of the top-five investment banks in New York have been extinguished by takeover or failures over the last several months.

These were Lehman Brothers (which filed for bankruptcy early this morning), Merrill Lynch (acquired today by BankAmerica) and Bear Stearns (which was forced to merge several weeks ago with J.P. Morgan because of the same type of liquidity crisis that has befallen AIG).

In the Bear Stearns case, the Federal Reserve took $30 billion face value of illiquid mortgage-backed securities off J.P. Morgan's hands to facilitate the deal.

"This is a very serious situation," Gov. Paterson said. "The people who are paying the price are the workers."

He said the crisis resulted from a lack of "transparency" in the balance sheets of investment banks, which were "acting outside the perusal of any supervisory body."

An insurance industry analyst, who could not be quoted by name due to industry and company guidelines, called the move by Gov. Paterson a "positive" as AIG worked to avoid the downgrade.

"It will help," the analyst said. "This is all about liquidity." The analyst noted that AIG already has $21 billion in cash at the corporate level, and $1 trillion in total assets.

"This is all about being able to show S&P it can post collateral to counterparties" of its troubled credit default swaps, the analyst added. These instruments were sold as insurance by AIG to guarantee mortgage-backed securities backed by subprime loans that are currently tanking at a growing rate.

The analyst said the state's move allowing AIG to move high-quality bonds from its insurance company subsidiaries to its parent company gave AIG the ability to raise cash by offering the bonds in the "repo market," which gives it the ability to buy back the bonds over a period of time.

Meanwhile, in an investment note early Monday, UBS insurance analysts Andrew Kligerman and Julie Oh still called AIG a buy, although they lowered the insurer's 12-month price target and earnings-per-share projections.

"Even post any agency downgrades, we think AIG has sufficient cash and collateral to meet near-term liquidity/capital needs without raising equity," they said.

They also projected AIG's Hurricane Ike losses as "manageable," at between $175 million and $475 million.

Over the weekend, the insurer was working on a three-part plan involving asset sales, shifting regulated capital from insurance operations to the holding company, and working with private equity investors, said a person familiar with the negotiations.

The discussions followed Friday's announcement by S&P that because of the increasing likelihood that credit swaps involving AIG would force the carrier to pay counterparties, it wanted AIG to increase its capital.

S&P cited the $18 billion in losses over the past three quarters from credit swaps AIG wrote to insure mortgage-backed securities that included subprime loans, which have been deteriorating in value.

AIG reported $13.2 billion in losses in the first six months of 2008, largely owing to declining values in mortgage-related securities held in its investment portfolio and collateralized debt obligations it owns.

Ratings downgrades could force AIG to post up to $14.5 billion more in collateral, according to a regulatory filing last month.

Cuts in ratings could also be severely detrimental to AIG's commercial insurance business, since some policies carry clauses that nullify a contract in the event of downgrades below a certain level.