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AIG too big to fail

Towering problems still face American International Group, which the U.S. government extended its fourth lifeline to Monday.

Associated Press (2008)

Towering problems still face American International Group, which the U.S. government extended its fourth lifeline to Monday.

WASHINGTON — A new definition of desperate times: Even as the government threw a stunning new $30 billion lifeline to American International Group on Monday, the beleaguered insurance giant confirmed it had lost more than twice that much, $62 billion, in a single three-month period.

And many more billions of federal dollars are almost sure to be shoveled into the company for a simple reason: Officials fear its collapse would cripple financial markets in this country and around the world.

The source of trouble for AIG, which has 74 million customers worldwide and operations in more than 130 countries, is its business insuring mortgage-backed securities and other debt against default. That business imploded once the credit crisis struck with force.

The government has now made four separate efforts to save the company, totaling more than $170 billion.

AIG is so big and sprawling, so intertwined with institutions around the globe, that its downfall could set off a vicious chain reaction. Upheaval on such a global scale would plunge the U.S. economy deeper into recession, drive up unemployment and stifle hopes for an economic rebound any time soon.

"Given the systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high," the Treasury Department and the Federal Reserve said in a joint statement Monday.

Turning AIG into a smaller, more viable company, "will take time and possibly further government support," the Treasury and the Fed acknowledged.

Mark Williams, a professor of finance and economics at Boston University and a former Federal Reserve bank examiner, said he thinks at least $200 billion more will have to be extended to AIG.

"AIG is holding the U.S. government hostage at gunpoint," Williams said. "The government can't cut its losses because it is too far into AIG. It has no choice but to keep on pumping money into the company."

Said Terry Connelly, dean of Golden Gate University's Ageno School of Business in San Francisco: "If AIG fails, the taxpayer wearing his or her other hats — the worker, the student loan payer, the car buyer, the homeowner — will suffer even more."

Under the new deal, the government revamped its rescue package, saying it will give AIG an additional $30 billion money on an "as needed" basis. AIG's bailout now totals about $173 billion.

Lawmakers have expressed skepticism over the rescue strategies of the new Obama administration and doubting investors have cut the company's share price to 45 cents.

AIG too big to fail 03/02/09 [Last modified: Monday, March 2, 2009 11:33pm]
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