The Next AIGs

When the federal government moved in September to provide an $85 billion revolving line of credit to AIG, Department of Treasury officials made two arguments.

The first was that the government had no choice but to prop up the world's largest insurer because of its fundamental role in the U.S. and global economies. The second was that the $85 billion was plenty to get AIG back on track, given its basic strengths.

The first argument still holds up. The second argument, however, quickly fell apart. In October, $38 billion was added to AIG's credit line. This week, the Bush administration announced the federal government had purchased $40 billion in AIG stock and modified several of the provisions of the original bailout, including reductions in the credit line. The net effect: The U.S. government has either lent or invested a staggering $150 billion in AIG and now amounts to its majority partner.

Given the sound reasons to doubt taxpayers will recoup this vast outlay — and given policymakers' initial inability to see the size of the hole AIG was in — this case is unsettling enough. But what's far more worrisome is the increasing prospect of a dozen or two more AIGs petitioning Washington in the confident expectation of similar massive federal aid.

Some of these petitioners will be companies with billions of dollars of losses from investments in exotic mortgage-backed securities such as the ones dragging down AIG and so many banks.

Some of these petitioners will be in a different category: poorly run companies sent into a tailspin by the recession.

This list starts with General Motors Corp. and Ford Motor Co.

And perhaps some companies in either category will be able to make a plausible case that their collapse would cause simply too much collateral damage. This is why we support considering federal help on a case-by-case basis.

Nevertheless, we fear we are now in an anything-goes era in which taxpayers will be asked over and over to bear others' burdens at a cost of literally trillions of dollars.

Before long, we expect to see corporate lawyers rounding up home-district congressional support for targeted bailouts in the same way Congress is gamed for earmarks. Michigan lawmakers' push for help for automakers may soon become the norm for legislators from every state with an ailing industry.

An odd alliance of consumer advocates and banks is already clamoring for a taxpayer bailout of credit-card debt.

State governments have gotten in the bailout line, too, led by New York. It is only a matter of time before local governments join in.

President George W. Bush has so far rejected sweeping new bailouts. President-elect Barack Obama has been circumspect and cautious in his comments.

We hope this caution continues after he takes office. The federal government already spends nearly 10 percent of its budget just to pay the interest on the $10.6 trillion national debt. Making our national equivalent of a bad interest-only mortgage much worse risks catastrophe.

REPRINTED FROM THE SAN DIEGO UNION-TRIBUNE.

DISTRIBUTED BY CREATORS SYNDICATE, INC.