WASHINGTON - The stunning rescue of insurance titan AIG puts the US government on the front lines of the battle in the global financial crisis, in a move some say pushes Washington toward nationalization of the economy, analysts said.

The move aimed at averting a new global economic shock calls for the US Federal Reserve to loan up to 85 billion dollars to avert a collapse at American International Group. The deal sealed late Tuesday gives the US government a 79.9-percent stake in the insurance behemoth.

The action came just nine days after the US government nationalized two other giants of the financial system, Fannie Mae and Freddie Mac, drowning from the collapse of the US real estate market.

AIG appeared to be in a death spiral after more than a week of panic and turmoil in financial markets that led to the failure of investment giant Lehman Brothers -- the biggest bankruptcy in US history -- and an emergency sale of Wall Street rival Merrill Lynch.

Some analysts said the action orchestrated by Fed chairman Ben Bernanke with the blessing of Treasury Secretary Henry Paulson pushes the government further toward nationalization.

"Last week we argued that, with the nationalization of Fannie and Freddie, comrades (George W.) Bush, Paulson and Bernanke had started transforming the USA into the USSRA (United Socialist State Republic of America)," said Nouriel Roubini, a New York University economist.

"This transformation .. continues today with the nationalization of AIG."

Roubini, nicknamed "Dr. Doom" because of his grim economic outlook, said the AIG rescue means that "the US government is now the largest insurance company in the world. So the transformation of the USA into the USSRA goes a step further."

Mike Shedlock at SitkaPacific Capital Management said the deal appeared to be a government takeover.

"If you guessed nationalization you guessed correctly. It is highly unlikely this will be temporary," he said in a blog posting.

"As with Fannie and Freddie, common shareholders are going to get wiped out and taxpayers are going to be on the hook. It will not stop at 85 billion dollars. Lord only knows what this will cost."

Robert Brusca at FAO Economics said however it was "not a nationalization because the Fed does not intend to run AIG. The Fed will get a profit on this, which it should."

Brusca said the deal appears structured in a way similar to the one that bailed out Chrysler in the 1980s that gives the government warrants that are special shares.

He said the loan is at "an extremely high rate" and will encourage AIG to quickly sell off assets to pay back the loan.

Brusca said AIG "pays a steep price" for the rescue.

"Any firm tottering on the edge here is not going to feel that there is a safety net it will want to fall into. Think Vietnam-era death pits with pungi sticks at the bottom."

Peter Cohan, a consultant and investment adviser with Peter Cohan & Associates said "the government has crossed over the line in the sand it drew over the weekend" by using public funds for the rescue.

"The incompetence of this government is breathtaking. On Sunday, it could have loaned AIG 40 billion dollars to keep its credit rating from getting downgraded. It refused to do so ... Now, instead of a bridge loan which would have tided AIG over until it could sell some assets to raise capital, the government is making a two-year loan that is twice as big. And we, the taxpayers, are likely to own this pile of assets that may be worth far less than the one trillion dollars stated on its books."

Others said the action represents the lesser of two evils, and averts a calamitous shock to an already fragile global financial system.

"I think in the short term, the markets are comforted by not having to go through two major bankruptcies simultaneously," said Andrew Busch at BMO Capital Markets.

"Medium term, the government will most likely make a killing on the deal. Longer term, every company that gets large enough to cause ripples on the financial sector pond in a distressed environment should be extremely worried. This is a dangerously broad and wide latitude for government intervention without any guidelines."