WASHINGTON — To understand why federal officials keep pumping astronomical sums of money into companies such as insurance giant American International Group Inc., it might help to take a high-altitude view of the situation.
Say from 30,000 feet, up where jet airliners fly.
AIG is not just the largest insurance company in the world, with about 74 million customers -- more than the populations of California, Illinois and Florida combined -- but also owner of a company called International Lease Finance Corp.
Century City-based International Lease Finance is the world's largest aircraft leasing business; it owns about 1,000 commercial jet aircraft, including planes flown by nearly every major airline.
If the once highflying AIG filed for bankruptcy protection, it could pull down International Lease Finance too -- with punishing repercussions for an airline industry already staggering under the weight of other economic problems.
"If somehow it can't be sold or can't be sold in an orderly way, it would send a real chill through the industry," said Richard Aboulafia, an aviation analyst for Teal Group Corp.
When the government ponied up $30 billion more for AIG last week -- on top of $150 billion previously committed -- the rationale was that it was "too big to fail." The same claim is made for other government rescue efforts, notably banking giant Citigroup Inc.
Failure of these companies would indeed hurt millions of ordinary Americans in direct and indirect ways, while sending further shock waves through the global economy. But that hasn't tempered any angry reaction from lawmakers and ordinary Americans alike.
"It effectively has the world financial system by the throat," Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, complained about AIG.
Yet federal policymakers keep pouring out tax dollars. Why? Because they are concerned about what would happen if the bailouts stopped. And the feared consequences fall into two categories: what officials know would happen, and what they don't know.
Some of the consequences of letting a giant fall can be foreseen, permitting officials to make at least educated guesses about whether they would outweigh the cost of continued aid.
Even more worrying are the consequences that can't be fully understood in advance.
AIG, Citigroup and other companies in their class have grown so large and diverse -- with their fingers in so many pies and their involvement so complex and hard to figure out -- that having one of them melt down could be like having an accident at a nuclear power plant: Bad under any circumstances, but would it be a Three Mile Island or a Chernobyl?
Rolling the dice on possibilities like that is something policymakers and politicians shy from. Bailouts seem like the fail-safe course.
With AIG, one thing that lies in the realm of the fairly predictable is what failure would mean for its healthy subsidiaries. For example, although AIG's life insurance companies remain well-capitalized and capable of paying their obligations, a bankruptcy could lead to a rush of customers seeking to cash out their policies, potentially destabilizing those companies, said Joe Paduda, a principal at insurance consulting firm Health Strategy Associates.
Also, many longtime holders of AIG life insurance policies might find them hard to replace. Age, changes in their health or other factors could make them uninsurable -- or only at sharply higher costs.
AIG is the world's largest property casualty insurer as well, and the largest provider of retirement savings for primary and secondary school teachers and healthcare workers. It has 71 U.S.-based insurance companies and 176 other financial services subsidiaries worldwide.
Having the parent company go down could create problems for all these companies, as well as for their customers.
"When individuals take a step back, they can see if AIG fails, it will in all likelihood impact them and people they know -- and the impact could be significant," said Paduda, a former AIG employee. "Putting the funds into AIG is a really bad option. The only problem is it's the best of the options on the table."
That's what federal officials believed when they stepped in again last week to help steady AIG as it reported a $61.7-billion loss in the last three months of 2008 -- the largest quarterly loss in U.S. corporate history. The goal is to keep the company afloat until it can sell its subsidiaries -- something that has become increasingly difficult as potential buyers struggle to raise cash amid the global recession.
Much the same calculation lay behind the Treasury Department's move Feb. 27 to increase the government's stake in teetering Citigroup.
Even the Fed's normally unflappable chairman, Ben S. Bernanke, said he was angry that AIG had put the nation, and the economy, in a bind.