AIG: Another Shoe Yet to Drop

(MoneyWatch)  Could anything worse happen to American International Group this week? The answer is: yes, it could.

AIG reported a record $61.7 billion fourth quarter loss today (March 2) and also got an additional $30 billion on top of the $150 billion it has already received from the U.S. Treasury and Federal Reserve.
The Feds' argument continues to be that AIG, the world's largest insurer, is too big to fail, and that failure would send its insurance operations, along with those of its competitors, into a tailspin that would push the country deeper into a recession. AIG's problems, big as they are, stem largely from credit default swaps, and killing off insurance would cut away healthy tissue along with the cancer.

But what happens if Congress disagrees? The AIG deal will face sharp scrutiny on Wednesday and Thursday from the U.S. Senate Banking Committee. Among witnesses testifying will be Federal Reserve Board Vice Chairman Donald Kohn and New York Superintendent of Insurance Eric Dinallo, who have been among those struggling to save the insurer from complete collapse.

Are the Senators going to be sympathetic, particularly when there's no certainty that AIG won't suck in yet more taxpayer cash? Not likely. While it's clear that the Committee can't veto the latest deal, it may signal strongly that no further resuscitation will be considered. The fact that the AIG news sent the stock market skidding 300 points to the downside today certainly won't improve the Senators' disposition.