The second bailout of American International Group Inc. (AIG) was preceded by a plea and a warning, according to a document obtained and published by ABC news. According to the document sent to the Treasury on February 26th, AIG warned the Treasury Department that, barring another rescue, it would collapse and spark a dangerous domino effect.
"The failure of the world's largest insurer at a time of major global financial and economic instability will exacerbate the challenge of reigniting consumer confidence," it wrote.
The report went onto say that the failure of AUG would have a "devestating impact on the U.S. and global economy," and that "damage to credit markets worldwide from an AIG failure would dwarf the Lehman fallout."
The consequences could include a fall in the dollar, increase in Treasury's borrowing costs, and doubts about whether or not the U.S. could support its banking system, AIG wrote.
"Public confidence in financial institutions is at a nadir and it is questionable whether the economy could tolerate another shock to the system that a failure of AIG would produce," the insurer warned.
Considered a classic example of "too big to fail," AIG noted that its failure "could create a chain reaction of enormous proportion."
Four days later, the government stepped in and bailed out the embattled insurer. That action made Federal Reserve Chairman Ben Bernanke "more angry" than any other episode of the past 18 months, he told lawmakers last week in testimony before the Senate Banking Committee.
"If there is a single episode in this entire 18 months that has made me more angry, I can't think of one other than AIG," Bernanke said. "AIG exploited a huge gap in the regulatory system, there was no oversight of the financial-products division, this was a hedge fund basically that was attached to a large and stable insurance company."
Last week, AIG received a new lifeline from the federal government, including up to $30 billion in equity capital commitments, aimed at preventing the company's collapse. The infusion came on the heels of the company reported a record $62 billion net loss for the fourth quarter, the largest loss in U.S. corporate history.
AIG, which was once the world's largest insurer, was saved from going bankrupt last September after receiving an initial $85 billion U.S. government bailout package. The Federal Reserve and Treasury have already provided over $150 billion in aid to AIG and the federal government currently owns 79.9% of the company.
The revamped bailout marks the third time the government has stepped in to rescue the beleaguered insurer.
AIG "made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system," Bernanke said.
However, AIG has been deemed too important to fail, as the collapse of the company would wreak havoc on the entire financial system and be disastrous for the U.S. economy. Therefore, officials "had no choice but to try and stabilize the system" by stepping in, Bernanke said.
Bernanke also offered a blessing of sorts to the massive short-term spending in the stimulus, although he stressed that it is critical that lawmakers balance the need for fiscal stimulus in the financial crisis with the long-term effects of budget deficits to achieve fiscal sustainability.
Testifying on President Barack Obama's 2010 Budget proposal, Bernanke warned that it is "critical" to consider the "challenges and tradeoffs" that are part of achieving recovery without drowning in debt.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.