AIG: 'Really No Longer With Us'

American International Group is being broken up in exchange for getting yet another lifeline from the government

To the average U.S. taxpayer, the math may not sound right: After pumping in about $150 billion of federal money, American International Group (AIG) posts a quarterly loss of almost $62 billion—the largest in American corporate history. And now it will have access to $30 billion in new cash from Washington.

American International Group is being broken up in exchange for getting yet another lifeline from the government. The former insurance giant posted a staggering $61.7 billion loss for the fourth quarter (about $22.95 per diluted share). Now, AIG is putting what many consider to be its most valuable insurance assets—American International Assurance and its Asian operations—under direct government control. Once the businesses are sold, taxpayers will reap the benefits.

I was struck by what Hugh Hendry, chief investment officer at Eclectica Asset Management, told cable channel CNBC on Mar. 2: "AIG is really no longer with us…I think the reality is (a lot of financial companies) left the business last year."

Fourth Government Handout

This is the fourth iteration of government support. Its goals in stepping up yet again are likely threefold:

1. Avoid a downgrade in AIG's credit rating, which would make it even tougher for the insurer to sustain its businesses and could prompt collateral calls, forcing it to default on its debt. (Many contracts require a company to post additional collateral if its credit rating drops.)

2. Avoid the specter of AIG going bankrupt, which could cause even wider panic in the market. (That said, the value of its stock—still hovering below 50¢ when I last checked—would suggest that few shareholders are optimistic that anyone is going to save them.)

3. Preserve as much of the assets of AIG in the hope that taxpayers can recover at least some money when they're sold off. That seems to be the toughest task, given how commercial clients are already starting to defect to other players and few are lining up to buy AIG's prized holdings. That could mean bargain-basement prices for assets such as AIG's marquee building in Tokyo, the loss of which could also be a big blow to the insurer's reputation in that country.

Humbler Hopes for the Future

A move to further boost the ailing company is perhaps inevitable and necessary, but Treasury Secretary Timothy Geithner should be prepared for a burst of public anger. AIG has become a potent symbol for anyone who thinks the bailout has thrust taxpayers into quicksand, with commitments that seem to rise with every passing week.

This time, at least, no one is pretending that AIG might return to its glory days any time soon. The former $100 billion-a-year giant will be smaller, humbler, and less of a force in the marketplace.

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