The Federal Reserve announced Tuesday that it will offer an $85 billion emergency loan bailout to the foundering insurer American International Group (AIG), according to Yahoo news. In return for the AIG bailout, the Fed will receive a 79.9 percent equity share in the insurer.
In a statement on its website dated September 16, 2008, AIG said its life insurance, general insurance and retirement services businesses, including its extensive Asian operations, are operating normally and are adequately capitalized to meet their obligations to policy holders.
AIG is a major insurer which claims to be the leading international insurance organization. AIG operates in 130 countries and jurisdictions, offering both commercial and individual policies. AIG’s products include property casualty and life insurance. AIG also provides retirement and financial planning services to its customers.
Does the AIG bailout by the US government to the tune of $85 billion seem like just one more unbelievable big number impossible to comprehend that pushes the government further into the red?
When I was working for the US government, we referred to unfathomably large sums of money such as the AIG bailout amount as “funny money.” The idea behind calling it funny money was the disconnect between the numbers and any meaningful reality. When negotiating a large settlement, it is hard to truly appreciate the significance of such a number. For example, if the AIG bailout amount were $81 billion or $93 billion instead of $85 billion, the amount difference may not have any measurable effect on the reaction of the average person.
How much is the $85 billion AIG bailout worth? Consider that the entire postsecondary student loan and grant system authorized under the Higher Education Act received a governmental appropriation of $87 billion last year. For $85 billion, this country can fund almost the entirety of its postsecondary loan and grant system … or it can bail out a single insurance company.
Military contracts in Iraq are said to have cumulatively cost the American taxpayer “at least $85 billion” since the inception of the Iraq War, according to a September 16 AP report, approximately the same amount as the AIG bailout.
Hoboes.com, which supports legalization of controlled substances, claims that the costs associated with prohibiting drug use cost the taxpayers $85 billion annually, which it calculates as $500 per taxpayer.
All of the deals made at the Dubai airshow combined in November 2007 also totaled $85 billion, according to Arabian Business, while the Irish Times reported recently that soaring fuel costs caused Cathay Pacific, owner of Dragon Air and holder of an 18 percent stake in China Air, to lose $85 billion in the first 6 months of this year.
Barack Obama’s proposed health care plan, by contrast, is estimated to cost “only” $50 to 65 billion per year; a single year’s health care for Americans could be funded under the Obama plan for 58-76% of the AIG bailout amount.
These comparisons may not help you fully appreciate the meaning of the $85 billion AIG bailout, but at least you now have some idea how much $85 billion can buy.