AIG Loses $61.7B; Gets More Bailout Money

New Rescue Package For Failed Insurance Giant Includes $30B; Fed To Get Stake In Two Units

(CBS/ AP)  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.

If it's such a money drain, why keep AIG afloat at all?

Because AIG is at the hub of the global financial system - insuring pensions, money markets, banks and insurance companies against losses in 130 different countries, reports CBS News correspondent Nancy Cordes. If AIG fails, the whole wheel could deflate.

"The president understands that he will take the steps necessary to ensure there is not a catastrophic failure to our economic system," said White House press secretary Robert Gibbs.

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.

AIG's $61.7 billion loss reported Monday is the largest since Time Warner Cable's $54 billion drop in 2002, reports CBS News correspondent Priya David.

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.

[rhs648]

Are there any lessons to be learned from the collapse of Lloyds of London that might be applicable to the AIG situation?

Because although they collapsed while the economy was okay, they collapsed and the economy didn't go along with it either.

I read on Wikipedia that they did some massive restructuring and stuff and are much smaller now . . .

I have no confidence in Timothy 'Wall St.' Geithner and Larry 'alliteration' Summers - they seem kind of like ships without a rudder . . .
Posted by SamTCat

SamTCat - Good example. Even if Lloyds of London dissappeared, the world would keep going. When a person dies, although he or she may be missed by loved ones, the world keeps going. Instead of plunging so much money into failing businesses, perhaps we should put it toward our infrastructure and solving problems such as costly health insurance.

[rhs648]

"I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by all future generations, under the name of funding, is but swindling future on a large scale." Go! Go! American Bankers, let me thank you for setting this Roman Empire on fire, it was long over due. May the stock market crash and the rich jump to from the highest places. I hope they can be on TV before they hit the ground, that be a great moment for us all.
Posted by tbuckl

Many investors were duped into believing that they were purchasing secure securities. Further, not all investors were wealthy people. Many of the investors were teachers, firemen, and others who were putting money into 401k plans and other pension plans. Many are retired people living on social security and collecting from pension plans. Look at how many ordinary people are losing their jobs because of the economy. Your post indicates a coldness and lack of concern for people. Even wealthy people should not be victims. Many of them made their money with hard work, careful planning, and a dedication to what they do.

[SamTCat]

Are there any lessons to be learned from the collapse of Lloyds of London that might be applicable to the AIG situation?

Because although they collapsed while the economy was okay, they collapsed and the economy didn't go along with it either.

I read on Wikipedia that they did some massive restructuring and stuff and are much smaller now . . .

I have no confidence in Timothy 'Wall St.' Geithner and Larry 'alliteration' Summers - they seem kind of like ships without a rudder . . .

[tbuckl]

"I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by all future generations, under the name of funding, is but swindling future on a large scale." Go! Go! American Bankers, let me thank you for setting this Roman Empire on fire, it was long over due. May the stock market crash and the rich jump to from the highest places. I hope they can be on TV before they hit the ground, that be a great moment for us all.

[rhs648]

correction

Forget Bush. He is now history. AIG can sell off assets, find lines of credit, or let a foreign corporation buy them out. Has anyone considered that other insurance companies can purchase chunks of AIG's business or insure accounts themselves? The bailout/Stimulus has become the largest example of corporate welfare grab the world has ever seen. The taxpayers will be the losers. If my small business fails, someone else will fill in the gap. The same is true of GM or any of the major corporations that allowed themselves to be so poorly run for so long.

[rhs648]

Forget Bush. He is now history. AIG can sell off assets, find lines of credit, or let a foreign corporation buy them out. Has anyone considered that other insurance companies can purchase chunks of AIG's business or insure accounts themselves? The bailout/Stimulus has become the largest example of corporate welfare grabs the world has ever seen. The taxpayers will be the losers. If my small business fails, someone else will fill in the gap. The same is true of GM or any of the major corporations that allowed themselves to be so poorly run for so long.

[rhs648]

Do others also feel that the United States is on the verge of Bankruptcy? Pumping money into cash draining companies such as AIG is like throwing money into a pit. How long will it take before the treasury runs out of taxpayer money dumping vast sums inro failing companies. It seems preposterous to believe that companies such as GM will expereience sudden recoveries. This is why the stimulus plan will fail. Using the money to build new bridges at least gives us something of long lasting value.

[cheetah-man7]

I am sure all you commentors will think before you vote next time. This country will be lucky if it don't go into a deep depression like 1929. We are bailing out too many companies and AIG just got a bailout when Bush was in office. How many more bailouts is Obama going to issue to these companies.
Posted by mariannpepit

_____________________________________________

I'm not happy about it either - BUT, this problem is one from Bush's shift! Obama is stuck between a rock and a hard place trying to un-do republican neglect and greed. Don't be so quick to blame Obama for Bush's mistakes!

[callum4320]

It's true that "AIG is holding the U.S. government hostage at gunpoint".If nobody can tell the taxpayers the overall problem and how much AIG needs and how will the money be spent, it's too dangerous to pump fical money into AIG.No company will survive from a high risky investment without any restrict. It seems that AIG invest most of the insurance fund in the high risky field. The goverment should introduce some regulations to shrink the range that a insurance corporation could invest, or make some strings attached when giving the money to the company.

[123pinball]

No sympathy here. Let AIG fail, let all the financial idiots fail and walk in my shoes. Lose all that you have greedily aquired, ripping off working class citizens. I really don't care what the financial outcome will be. I've already lost my business, my home and life savings and cannot get any help from our government, not one red cent. Never mind 173++++billion!!
Discuss some more at: http://helpcheyenne.net

[mariannpepit]

I am sure all you commentors will think before you vote next time. This country will be lucky if it don't go into a deep depression like 1929. We are bailing out too many companies and AIG just got a bailout when Bush was in office. How many more bailouts is Obama going to issue to these companies.

[farnorth5]

Well a good cross section of comments,and now for the solutions:
1.Until you change the POWER of the Banksters ,nothing will happen
2..Stop the Conflict Of Interest by rescinding the Banks/Finance Insurance Companies from contributing to Election Campaigns.
For your info Freddie Mack/Fany May between them contributed $8Miilion to Obama,s Campaign and $6Million to McCain's Campaign ,both a clear conflict when Govt regulates the industry.
No wonder the politican's just say "How high sir/"when these people turn up for "Favour's"
.The PEOPLE ar simply being outbid during the Election Process.....
3.A three term limit would help as well ,to modify the entrenched Current Mob
When was the last time you had a new choice for the Senate or House,?????

[billpl-2009]

"What nobody has mentioned in this article is that AIG was also a Mortgage Company and got themselves involved in Credit Default Swaps ,in order to sell off their subprime crap they sold around the world.
This is the reason for all this nonsense.The"NEW"regulations allowed them to do both things (Insurance and Mortgage Sales) What a disaster !!!!!!!" -- Posted by farnorth5


well at least you got it right

All in thanks to Barny Frank and his congressional gang of idiots, who thought it would be great to give zero down, interest only, sub prime loans on over inflated property to people who don't even know how to balance a checkbook.

[loneeagle57]

I have had enough of our government giving these worthless schmucks billions of dollars of good taxpayer money. AIG had several bailouts now if they can't save themselves then by all means it is time to call it quits. These banks were given money to help out the people not themselves. LET THEM CLOSE. And I would like to note that about a year ago some of you chastised me for saying that the economy was on the verge of collapse just because the stock market lost a couple hundred points. Now that we have lost over 8,000 points I am going to state again that we are now in a depression.

[billpl-2009]

"Am I in a Twilight Zone episode?
This is so surreal....giving money to crooks! What is happening to the USA?" -- Posted by jeff92706

Yup...you and just about every poster on this thread.
the Twilight Zone of stupidity.

READ the article.

AIG is not getting a thin DIME. They have to pay out the money faster than they're getting it.
The government is just trying to keep everything else from crumbling under the weight of mortgage collapse.
AIG got stuck in the middle. (with their thumbs up their assets)

[cbsblogger]

AIG was content to accept many billions in premiums for their alleged trillions in CDS protection against default on the securitized AAA rated trash. This provided them with big profits and huge bonuses and now the taxpayers must pay the piper on their behalf.

Insurance companies whether they are homeowners, health care, auto, or coverage of Credit Default Swaps have but one role. Maximize their premiums but find any reason not to pay the claims. They are an added financial burden that should be removed from the health care chain.

All the executives of AIG to include Hank Greenberg (and the other Wall St firms) need their prior 5 years of compensation confiscated for the benefit of taxpayers. All this wealth accumulation was questionably illegal compensation and their personal portfolios should be confiscated for the benefit of taxpayers..

[farnorth5]

What nobody has mentioned in this article is that AIG was also a Mortgage Company and got themselves involved in Credit Default Swaps ,in order to sell off their subprime crap they sold around the world.
This is the reason for all this nonsense.The"NEW"regulations allowed them to do both things (Insurance and Mortgage Sales) What a disaster !!!!!!!

[farnorth5]

The truth is that AIG has $500 Billion of CDS(Credit default swaps )on its books.The Counter parties to this $500 Billion are firms like Goldman Sachs.Merrill Lynch and others,including foreign banks.If they defaulted these organizations would be BROKE..
These private sector bankers have really shot themselves in the foot through their lack of regulation the past 10years.
The real question is "Can the Presidents staff (Tim Geightner et al )keep the amount of taxpayer bailouts to the Minimum
In plain English .Should the taxpayers pay or should the Investors loose all their money ,including those CEO,s who received all those millions of dollars of shares in compensation over the past 10 years.
I know who I support .It,s certainly not the Broker Dealers/Investment Bankers ,it,s the AMERICAN CITIZENS who work each day to make a living............Do your best Mr.President to stop this abuse of power by the Banksters.....

[singinrick09]

what america needs is for every AMERICAN get together and stop the goverment from steeling our money..& our grand kids= childrens money.
p/s ask the lord to send me a check....
Posted by fedd-up

There is far more to life than money. The LORD will bless a nation if that nation puts Him first. But our nation has decided to shut the door on Him in recent times, sadly.

The last time our country had a spiritual re-awakening was immediately after 9-11-01.

It's a shame that it takes such a tragic event to wake people up.

[fedd-up]

what America needs is a SPIRITUAL RE-AWAKENING PACKAGE!

what america needs is for every AMERICAN get together and stop the goverment from steeling our money..& our grand kids= childrens money.
p/s ask the lord to send me a check....