The AIG Effect: We Broke It, You Buy It

WASHINGTON, DC-Jaws dropped open wide upon hearing the terms of the latest bailout the government has given to American Insurance Group. The Federal Reserve Bank and the Treasury Department are injecting another $40 billion in bailout funds into the one-time industry stalwart, bringing the total amount of state-support funds in AIG to $150 billion.

The capital AIG is receiving–again–from the government has kicked off a new round of speculation as to the eventual direction and possible expansion of the Troubled Asset Relief Program unveiled this Fall will take, especially under an Obama Administration. “Hands from every sector will be reaching out,” one analyst tells GlobeSt.com. “The argument that AIG cannot be allowed to fail will be–and is–increasingly being made for other industries as well, especially the auto industry.”

The concern among financial institutions is that the focus of the bailout may expand far beyond the original mandate of helping banks that were disabled by toxic real estate debt, this analyst says, thus diluting its impact. AIG, of course, falls under the category of financial institution, but the terms are so generous it may be hard for other sectors to ignore the government’s largess.