WASHINGTON — Will $700 billion be enough?
That question emerged Monday as the Bush administration decided to pump more money into insurance giant American International Group Inc. and lawmakers pushed to extend the government's rescue to the ailing automobile industry.
The extra money for AIG, part of a major overhaul of the effort to keep the company out of bankruptcy, brings the government's tab to about $150 billion, up from about $123 billion. In a concession that the previous fix was inadequate, the Treasury Department said it would also spend $40 billion to buy an equity stake in the company.
Though the additional steps may ease financial stress on that company, they may only feed the demand from others seeking a share of the $700-billion rescue package that Congress had approved for the financial industry.
"It strengthens the argument of others to say, 'Well, why not us?' " said Gary Schlossberg, senior economist with Wells Capital Management in San Francisco. He predicted that the additional dollars going to AIG would "lower the bar" for requests for government money from outside the financial industry.
The new AIG pledge, coupled with similar aid for banks and other institutions, means that a significant portion of the $700 billion that Congress had approved for rescuing financial and other companies deemed vital to the economy has been committed. And pressure to widen the scope of such aid is growing as the economy sinks deeper into trouble.
"The money could go quickly," said Daniel J. Ikenson, associate director of the Center for Trade Policy Studies at the Cato Institute, a free-market think tank. "As long as there is a big pot of money sitting here in Washington, every industry is going to ready its lobbyists to get a slice of that pie."
Already, the government has committed $250 billion to buy direct stakes in banks, and an additional $40 billion from the fund will go to AIG to supplement loan guarantees made before the rescue legislation was passed.
"What if a lot of these Silicon Valley start-ups can't get financing -- do we start bailing them out? Or Apple, or Microsoft, or Yahoo?" said Timothy J. Yeager, an associate finance professor at the University of Arkansas at Fayetteville and a former economist at the Federal Reserve Bank of St. Louis. "Where do you stop?"
