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It’s getting more and more clear that insurer AIG will never be able to pay taxpayers back for the $170 billion that was lent to the failing company.

The problem is coming from AIG’s trading partners and while i has fulfilled its contracts with banks, both domestic and foreign, it has paid out over $90 billion of the bailout money to big names in finance from losing on its bets associated with subprime mortgages as well as other risky assets.

From MSNBC:

As the cost of the rescue swells, experts says it’s becoming harder to envision a scenario in which the government could recoup its full investment. Even though the AIG payouts to major banks have angered critics of the bailout, it might be legally impossible to claw back any of the billions already doled out.

“A contract is a contract,” said Russell Walker, a risk management professor at Northwestern University. “That money all went to people who bought protection from AIG.”

The government agreed to uphold those contracts when it seized control of American International Group in September. It argued that failing to repay the debts of the globally interconnected company could cause catastrophic losses at big international banks, potentially toppling the financial system.

Scrutiny of AIG’s dealings with its trading partners comes after revelations over the weekend that the insurer plans to pay out tens of millions in executive bonuses. President Barack Obama on Monday accused AIG of “recklessness and greed.” He pledged to try to block it from handing out the bonuses, which AIG insists it’s contractually obligated to pay.

With all the focus on AIG today and over the weekend, the company will be under scrutiny by not only the public, but law enforcement also.

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Jeremy

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