So, we know that the government’s $85 billion handout to AIG (American International Group, Inc.) had to come from somewhere—the Feds didn’t just turn on the printing press to manufacture more cash.

No—they had to dip into our taxpayer money to bailout the insurance company.

This news comes after the Congressional Budget Office released a report last week that the federal budget deficit will increase by $246 billion over last year, for a grand total of a $407 billion federal deficit.

Last year—when the deficit was “a mere” $161 billion—the government attributed part of the spending increase to it covering “the insured deposits of insolvent financial institutions,” according to the agency.

That $246 billion increase didn’t even cover the recent government bailout of Freddie Mac and Fannie Mae. Although no one knows the exact cost of the Fannie and Freddie bailout, we expect it to be as much as $100 billion.

The Details

Not only is this costing American the taxpayer, but now the U.S. government has a 79.9 percent stake in one of the top insurance companies in the world. This wasn’t just an act to lend a helping hand—this was a government takeover.

AIG said it will fully repay the loan (with an interest rate of about 11.5 percent) by selling some of its assets. It’s up to AIG to determine what gets sold and when it happens.

The government will have veto power in that decision.

According to The Wall Street Journal, AIG’s current CEO, Robert Willumstad, is anticipated to be replaced by the former CEO of Allstate Corp., Edward Liddy, according to an unnamed source close to the deal.

With a 79.9 percent share, the government also has the right to remove senior management.

Looks Like We’re Seeing A Trend

These company fallouts have been the result of the sub-prime loan fiasco and Wall Streeter’s greedy money manipulations.

If the government is in such a deficit, it's no surprise that its citizens are feeling the crunch too. More people are filing bankruptcy and mortgage foreclosures are becoming much more frequent than previous years.

The Fed said the deal was necessary because the company’s failure would threaten the health of the already brittle economy.

AIG’s failure could “lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance,” the Fed said in a statement. The White House said it backs the Fed’s decision.

Many are applauding the move, including New York Governor David Paterson who said “Policy holders will be protected, jobs will be saved.”

As usual, taxpayers aren’t getting much of a say in the matter.

Tags: AIG, bailout, bankruptcy, foreclosures