The American International Building (AIG) in Lower Manhattan
The American International Building (AIG) in Lower Manhattan - 
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Renita Jablonski: Monday started off with talk about the government expanding its stake in Citigroup. This morning, worries about American International Group are in the spotlight again. The government has an 80 percent stake in AIG after bailing out the company last year.

Edward Hadas joins us now from London. He's with online financial commentary service Breaking Views. All right Edward, what's happening with AIG?

Edward Hadas: AIG is going to report it is rumored a $60 billion loss. To make up for that loss, they need the money from somewhere, and the somewhere they're likely to turn is the U.S. government.

Jablonski: OK, but what happened to the $150 billion AIG has already received from the government?

Hadas: Well, that's being used to support other assets on the AIG balance sheet, and that money is not free for them to use for other things. As losses mount, they need more money to make up the difference.

Jablonski: And how can they restructure what they do have?

Hadas: Well, they've been trying. They're under new management and they've been trying to cut down their balance sheet. But in fact in a weakening economy, anyone who's in the lending business -- or indeed, in the holding business -- tends to find their portfolio is worth less. If you're a bank or an insurance company, that's very, very painful.

Jablonski: It would be safe to characterize it as they're still drowning in these toxic assets.

Hadas: It sure looks that way. Eventually you reach bottom, and I'm not sure if drowning's the right image. You start to rise up again -- not necessary there yet.

Jablonski: And will they rise?

Hadas: Certainly in not any form that was recognizable, but the U.S. economy will certainly rise, the world economy will certainly rise at some point.

Jablonski: So what you're saying is the government will likely give AIG more money, but these are sunk costs.

Hadas: Yes, that's right. And it should be remembered, though, that you give AIG money because that's the lesser evil. If you didn't give them money, it could cause more disruption in financial markets, more disruption of financial activity, a worse recession. So the judgement is that this is, while it's going to cost the taxpayers some money, the taxpayers would be much worse off if AIG were allowed to fail.

Jablonski: And I guess that goes back to Lehman Brothers.

Hadas: That's right. When Lehman Brothers failed, there was an immediate sharp decline in global trade, an immediate sharp decline in asset prices. And we're still seeing the effects of that in terms of economic activity. So that's not an experiment we want to repeat a second time.

Jablonski: Edward Hadas is assistant editor with the online financial commentary service Breaking Views. Thanks so much, Edward.

Hadas: Thanks.