Feds dig $30 billion deeper for AIG

The U.S. government poured another $30 billion into insurance giant AIG this week, seeking to shore up the troubled firm that has insured vast amounts of toxic debt held by U.S. and European financial institutions. With this week’s bailout, the fourth for AIG since September, the government, which already owns 80 percent of AIG, has committed $180 billion to the company. “The systemic risk of doing nothing was simply unacceptable,” said White House Press Secretary Robert Gibbs.

The bailout was initiated by the Treasury Department in response to AIG’s loss of $61.7 billion in the final quarter of 2008—the largest quarterly loss in corporate history. The government also eased the terms on previous loans to AIG to help the firm avoid ratings downgrades. The government hopes to recoup some of its investment by spinning off salable AIG businesses.

Taxpayers are stuck paying for a massive “scam,” said Joe Nocera in The New York Times. For years, AIG exploited regulatory loopholes that enabled it to insure risky mortgage-backed securities while setting aside no money to pay off eventual claims. AIG also dipped its clients’ toxic assets in the “holy water” of AIG’s triple-A credit rating, providing risky junk with the appearance of prudent investments. Through this “extreme hubris, fueled by greed,” the company became too big to fail.

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And too big to tell the truth, said The New York Times in an editorial. We keep hearing that “major financial institutions” depend on AIG’s survival, yet we still don’t know which companies are involved. Taxpayers deserve to know the identity of AIG’s toxic partners and what roles they played in the crash. If possible, they should be “made to pay for the bailouts.”

Unfortunately, bailouts of AIG aren’t over yet, said The Wall Street Journal. The company will need additional cash infusions. But “instead of an open-ended commitment to pour money as needed into AIG, the Fed and the Treasury should be offering taxpayers an exit strategy.” AIG needs a plan to attract private capital; the government’s takeover is only making that harder.