If the gamble succeeds, the company with operations in 130 countries and all 50 states nurses itself back to health, unhinged financial markets calm down and taxpayers turn a profit.
If it fails, the American public feels the hit - and possibly finds itself rescuing other major financial institutions, swelling the deficit and potentially driving up interest rates on mortgages, student loans and other debt.
The complexity of AIG's business - it has nearly 300 agents and 50 companies licensed in Utah - and the fact that it does business with thousands of companies and policyholders around the globe, made its survival critical at a time when there was stress throughout the financial system worldwide.
What frightened Fed and Treasury officials was not simply the prospect of another giant corporate bankruptcy, but AIG's role as an enormous provider of financial insurance to investors who bought complex debt securities tied to the value of home loans - the same kind of securities that forced Lehman Brothers into Chapter 11 bankruptcy Monday. As home values have fallen, the value of the underlying mortgages has declined, and AIG has had to reduce the value of the securities on its books. That effectively required AIG to cover losses suffered by the buyers in the event the securities defaulted. It meant AIG was potentially on the hook for billions of dollars' worth of risky securities that were once considered safe.
If AIG had collapsed - and been unable to pay all of its insurance claims - institutional investors around the world would have been instantly forced to reappraise the value of those securities, which in turn would have reduced their own capital and the value of their own debt. Small investors, including anyone who owned money markets funds with AIG securities, could have been hurt, too. And some insurance policyholders were worried, even though they have some protections.
''A failure was seen as having catastrophic implications. It met the threshold of too big and too intertwined to fail,'' said former Federal Reserve economist Brian Sack now at Macroeconomic Advisers.
Analysts said Wednesday the odds are pretty high that the rescue will be a good investment for taxpayers, with AIG paying off the loan at a relatively high interest rate and the government potentially making money off its nearly 80 percent equity stake in the company.
In 1979, the U.S. guaranteed $1.2 billion worth of loans to the struggling automaker Chrysler. When the company rebounded four years later, the government reaped more than $300 million in profits.
Besides life, property and other insurance offerings, AIG provides asset-management services and airplane leases. Its myriad businesses are also linked to mutual funds, annuities and other retirement products held by millions of ordinary Americans.
Representatives at local offices declined to answer any questions, referring queries to a corporate spokesman, who did not return a call.
