The Government's Insane Bailout Of AIG (AIG) Continues (BAC)(C)

The federal government has put $150 billion into rescuing AIG (AIG), which was once the most profitable insurance company in the world. With financial relationships linking it to banks and brokerages all around the US and overseas, AIG was deemed "too big to fail." When Lehman went out of business it cost its trading and lending partners tens of billions of dollars. AIG’s balance sheet makes Lehman’s look tiny.

But, the $150 billion has not been enough.

According to The Wall Street Journal, "American International Group Inc. is in discussions with the government about Washington backstopping some of its troubled assets and is considering selling units through initial public offerings."

That would mean it would get the kind of asset safety net that Citigroup (C) and Bank of America (BAC) got. It could push the government’s financial obligations attached to AIG above $200 billion.

The IPO idea is even more ridiculous. The market for these transactions has dried up as the credit crisis has worsened. Even if AIG simply spins some of its divisions off into new public companies, how does it get cash from that to pay back loans to the government? It doesn’t, which means taxpayers could be left with ownership in these new publicly traded companies. Everyone involved can watch the value of them drop as the stock market collapse continues.

Douglas A. McIntyre