March 2, 2009 -- How much will each American family pay, on average, to bail out beleaguered insurance giant American International Group? Try more than $1,400.
The government's newly overhauled rescue package for AIG is $162.5 billion, according to government officials. Divide that by 111,609,629 -- the total number of U.S. households, according to the U.S. Census' 2005-2007 American Community Survey -- and the result is $1,455.97. That's nearly double the maximum tax benefit U.S. couples will receive under the federal stimulus package approved last month.
"I think the average American taxpayer should feel like they were cheated by AIG's managers and by the people who engineered this bailout scheme in the first place," said Eli Lehrer, a senior fellow at the Competitive Enterprise Institute, a libertarian Washington, D.C., think tank.
Taxpayers won't, of course, get an actual bill for AIG, but experts said the spending will, as with other government spending, result in consequences down the road such as a greater deficit and higher interest payments. That, Lehrer said, could lead to tax hikes beyond those planned by the Obama administration.
The amount the government is investing in AIG, which reported a record-breaking $61 billion quarterly loss today, dwarfs its investments in other U.S. financial institutions. Of the banks receiving U.S. aid, Citigroup and Bank of America garnered the most -- $50 billion and $45 billion, respectively -- from the federal Troubled Assets Relief Program. The government's investment in AIG includes both TARP funds as well as a credit line from the Federal Reserve.
In terms of sheer size, the AIG bailout may be more comparable to another bailout of sorts -- the Marshall Plan, the U.S.-funded program that helped rebuild Western European countries following the devastation of World War II. When adjusted for inflation, according to Jim Bianco of Chicago-based Bianco Research, the United States spent $115.3 billion, about $47 billion less than the price tag of the AIG rescue.
Taxpayers Bailing Out AIG
Dean Baker, the co-director of the Economic Policy and Research Institute, said the money being used to prop up the firm is, in effect, bailing out its creditors, investors that include pension funds and banks.
"There's a logic to it, and we probably want to do much of what they're doing," he said.
Beyond its traditional insurance businesses, AIG offered "credit default swaps" in recent years, which are essentially insurance policies on investments. Investors took out these insurance policies to protect themselves in case their investments, such as mortgage-backed securities, went awry. Often investors acted as speculators, buying credit default swaps even when they didn't have investments to insure, thereby betting on other people's investments.
With so many mortgage-backed securities defaulting and the housing market crashing, AIG is now on the hook to make good on its credit default swaps. If AIG didn't meet its obligations, Baker said, it could have dire consequences for banks and pension funds.
AIG will attempt to meet these obligations with the help of the government's aid.
Baker said the government hasn't done enough to explain, however, how it will pay AIG's creditors. He said he believes the government should distinguish between speculators and those who were trying truly to insure their investments. The former, he said, should receive less of a payout. But it's unclear whether the government is doing that or something else.
"It's a massive expenditure of taxpayer dollars," he said, "with no accountability."
With reporting from ABC News' Daniel Arnall.