The American International Group has become a money pit for the United States government, Breakingviews says.
The insurance giant's new $150 billion bailout is bigger and looks easier on A.I.G. than its previous two facilities, in aggregate $123 billion, from the Federal Reserve. The package is better defined than before,the publication notes, but the increased potential burden on taxpayers is embarrassing for the Fed and the Treasury, it says. It underlines the need for regulation that catches any group that's too big to fail.
In structural terms, A.I.G.'s Bailout 2.0 looks like an improvement, says Breakingviews. It aims to solve the company's main problem -- the cash bleeding from its $400 billion credit-default swap portfolio -- by unwinding the worst of the instruments completely in a kind of "bad bank" separate from A.I.G.'s insurance businesses. It's doing something similar with a collection of dodgy mortgage-backed securities. In addition, the Treasury will invest $40 billion in preferred securities under its Troubled Asset Relief Program, and the New York Fed will replace its existing $85 billion credit facility with a new $60 billion loan with a much lower interest rate.