Out of Control Policy Blog

Surprise! AIG to Get Even More Taxpayer Money - $30 Billion More

Back in September 2007--both what seems like ages ago and just yesterday--when the government said it was going to bailout troubled insurer AIG, a number of anti-spenders said that it wouldn't just be the initial $80 billion but the government would wind up spending more. Pro-bailouters ensured everyone that this was just a two year loan. At one point I was even deceived by initial government claims that Uncle Sam would only extend a loan and not take on debt... $100 billion more later, how far we have fallen.

Already with capital infusions of over $150 billion in loans total, AIG is set to get up to another $30 billion on news that they will post a $61.7 billion loss for the forth-quarter of 2008. Total losses for AIG in 2008 are roughly $100 billion, oh, and we decided to back AIG's debt after all. Former AIG CEO Hank Greenberg told Bloomberg News that the original terms of the government loan were too costly to let the firm recover. As such the role of the government has shifted from short-term lender (2 years was the original term), to long-term equity investor.

The way it stands now the government is just picking up more assets like someone cleaning up at the end of Monopoly. AIG will pay down its federal loans in part by turning over "its two largest international life insurance units valued at about $26 billion," according to Bloomberg. "The company will also give the government rights to the cash flow from tens of thousands of life insurance policies, valued at about $8.5 billion. The life units may be sold, or stakes in the businesses may be sold to the public."

The fact of the matter here is: we told you so. Now, sitting on an ivory tower of "rightness" won't solve any problems--so we'll focus on reality--but the increased bailouts needed for AIG, Citi and others should serve as a warning that taxpayer money going to these firms is just prolonging their doom. There is a reason they were failing firms. The sooner we let them fail the sooner something better can rise in its place.

Anthony Randazzo is Director of Economic Research


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