AIG Warned of 'Catastrophic' Failure

On the eve of its latest bailout, American International Group warned U.S. government officials that it needed more help from the Treasury Department and the Federal Reserve to prevent "potentially catastrophic unforeseen consequences."

In a 21-page draft presentation, dated Feb. 26 and labeled "strictly confidential," company officials painted a grim set of possible scenarios, cautioning that its failure would cause a "chain reaction of enormous proportion."

The collapse, for instance, would strain the global insurance industry, hurt the value of the dollar and damage money-market funds, AIG warned. The company's failure, it added, would also erase taxpayers' existing investment in the firm and foster "doubts about the ability of the U.S. to support its banking system."

On March 2, the government announced that it would ease the terms of its existing loans to AIG and give the struggling company access to an additional $30 billion, raising the total rescue package to an estimated $170 billion. That same day, AIG posted a $61.7 billion loss for the fourth quarter of 2008, the largest such loss in U.S. corporate history.

The presentation "reflects months of dialogue between the company and various people in the government, really trying to understand the systemic risk," said an AIG official, who was not authorized to speak on the record.

Article Source: http://www.washingtonpost.com/wp-dyn/content/article/2009/03/09/AR2009030902806.html