By JEANNINE AVERSA and IEVA M. AUGSTUMS, AP
Business Writers Jeannine Aversa And Ieva M.
Augstums, Ap Business Writers Mon Mar 2,
6:39 pm ET
http://news.yahoo.com/s/ap/20090302/ap_on_bi_ge/aig_rescue/print
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 the U.S. 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.
The company provides life, property and other insurance
offerings, with 30 million policyholders in the United States
alone. It also provides asset-management services and airplane
leases.
Its International Lease Finance Corp.,
which leases jets to airlines, has been up for sale and was thought
to be one of the insurer's jewels. But falling travel demand has
forced airlines to shrink fleets.
AIG's businesses also are linked to mutual funds, annuities and
other retirement products held by many Americans.
"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.
Indeed, many analysts say the United States will eventually be
forced to funnel billions more into the company, which the
government seized control of last year. And they say AIG has become
a seemingly bottomless money pit that poses a cautionary tale about
the effectiveness of U.S. bailouts.
Mark Williams, 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."
"What's going on now is the government is shifting from a
tough-love lender to a little more friendly equity investor,"
Connelly said.
At the White House, press secretary Robert Gibbs said, "We're
focused on taking the steps necessary to restructure AIG so that
it, in the long run, no longer poses the type of systemic threat
that it poses right now."
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
around $173 billion.
The American public already is angry about using taxpayer money
to bankroll a string of big financial company bailouts — including
Citigroup, Bank of
America and mortgage giants Fannie Mae and Freddie Mac.
Lawmakers also have expressed skepticism over the rescue
strategies of the new Obama administration.
"There are still too many unanswered questions about how AIG
spent" some of the rescue money the government has already put up,
said Rep. Elijah Cummings, D-Md., a member of
the House Committee on Oversight and
Government Reform.
Doubting investors have cut the company's share price to 45
cents.
Among its biggest problems: It can't find buyers for pieces of
its company — such as Asia-based American
International Assurance Co. and American Life
Insurance Co., which operates in 50 countries — that it
hoped to sell to repay the government. As of Feb. 13, AIG had sold
interests in nine businesses.
The additional $30 billion credit line AIG received Monday will
come from the government's $700 billion financial bailout pot.
In an interview on NBC's "Today" show, AIG Chairman and Chief
Executive Edward Liddy said: "The new $30 billion is a standby
line. It's not necessarily something that we think we'll have to
draw on right away."
But Liddy, who joined AIG after its initial bailout and is being
paid an annual salary of $1, backed off earlier statements about
paying back taxpayers in full within two years.
The government announcement came as AIG, once the world's
largest insurer, reported it lost $61.7 billion in the fourth
quarter of last year, the biggest quarterly loss in U.S. corporate
history.
The revamped package also reduces interest payments AIG has to
pay on government loans. The Treasury will exchange its existing
$40 billion in AIG stock for preferred shares
with revised terms that more closely resemble common equity.
