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AIG rescue continues to have 'poisonous effect': Panel

world Updated: Jun 10, 2010 21:38 IST
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Pointing out that government's rescue of AIG is still having a "poisonous effect", a US Congressional panel has said authorities should have explored all options before deciding on multi-billion dollar bailout.

The US government has so far pumped in a whopping USD 182 billion taxpayers' money into insurer American International Group (AIG), one of the costliest bailouts in decades. "The Federal Reserve and Treasury failed to exhaust all other options before undertaking their unprecedented, taxpayer-backed rescue of AIG and its creditors," the Congressional Oversight Panel (COP) said today.

Created by the US Congress in late 2008, COP reviews the current state of financial markets and the regulatory system. Coming down heavily on the AIG bailout, the panel said, "the government's rescue of AIG continues to have a poisonous effect on the marketplace. "Markets have interpreted the government's willingness to rescue AIG as a sign of a broader implicit guarantee of 'too big to fail' firms".

Before committing taxpayers' money to rescue AIG, the panel said the government had additional options, such as orchestrating a rescue funded entirely or in part by private parties. According to the panel's report, the AIG bailout has also resulted in extraordinary risk to taxpayers. "... rather than sharing the pain among AIG's creditors, the government instead shifted those costs in full onto taxpayers," it added.

Recently, the Congressional Budget Office estimated that taxpayers' would lose USD 36 billion on AIG bailout. "Even at this late stage, it remains unclear whether taxpayers will ever be repaid in full... The ultimate cost or profit to taxpayers is unknowable, but it is clear that taxpayers remain at risk for severe losses," the report noted.