Yesterday AIG’s CEO admitted that the failed insurance company will not be able to pay back the federal government’s massive bailout for three to five years, a much longer period than the public was told initially. Even that may be too optimistic since it is contingent on a global economic recovery.
When the initial $85 billion bailout of AIG was put in place in September, polticians and the public were scandalized by the size of the bailout. It was the most radical intervention in private business in the history of the Federal Reserve, putting taxpayer money at risk to protect bad investments made by A.I.G. and the financial institutions who did business with the company.
To mollify concern over the bailout, Fed officials said they expected AIG would be able to pay back the “bridge loan” very quickly. “Fed staffers said that they expected A.I.G. would repay the loan before it comes due in two years, either through the sales of assets or through operations,” the New York Times reported the day after the bailout was announced.
Since September, the Treasury and the Federal Reserve have committed another $95 billion in cash and loans to rescue the company. And now the payback period is stretching out ever further into eternity.
“It will take somewhere between three to five years,” Liddy told the House Committee on Oversight and Government Reform. “There’s great opportunity for the taxpayer to be repaid.”
But he added that this was just a possibility not a promise. “It is heavily dependent on what happens with the worldwide economic situation,” Liddy said. “We are not an island.”