American International Group, in a gloom and doom discussion paper, has warned regulators that unless it is kept afloat, there would be "turmoil in the U.S. economy and global markets."

The "strictly confidential" document--titled "AIG: Is the Risk Systemic?"--has undergone several drafts. The one obtained by NU Online was dated Friday, March 6, and was prepared with government input, NU learned.

After reporting a $61.7 billion fourth-quarter loss last week, AIG announced that the terms of government support for the conglomerate that operates in 140 countries was eased, with regulators agreeing to provide $30 billion in additional capital.

Such extreme measures are necessary, because what happens to AIG "has the potential to trigger a cascading set of further failures, which cannot be stopped except by extraordinary means," the firm argued.

"The failure of AIG would cause turmoil in the U.S. economy and global markets, and have multiple and potentially catastrophic unforeseen consequences," the firm added.

"The inability of AIG to immediately secure additional assistance from the Federal Reserve and the Department of the Treasury threatens not only AIG's sales process, but also consumer and business confidence around the world," the company said.

According to AIG's draft, "systemic risk is principally centered in the 'life insurance' business because it is this subsector that has the greatest variety of investments and obligations that are subject to loss of value of the underlying investments."

The company predicted that if it were to fail, "it is likely to have a cascading impact on a number of U.S. life insurers already weakened by credit losses. State insurance guarantee funds would be quickly dissipated, leading to even greater runs on the insurance industry."

While calling some of the potential consequences it was outlining as "inherently judgmental and, to an extent, speculative," AIG said the bankruptcy of financial giant Lehman Brothers Holdings Inc. led to the unquestionable conclusion "that the adverse consequences of the failure of a major financial institution cannot be foreseen."

AIG argued that "just as the government was unable to predict that the failure of Lehman would lead to the collapse of the Reserve Fund, followed by much of the money market industry, the government would be even less capable of predicting the fallout of the collapse of a much larger, more global and more consumer-oriented institution such as AIG."

Much of the draft was filled with figures outlining the enormous breadth of the company's impact.

Among the numbers contained in the draft:

o The company's failure would impact 116,000 AIG employees and 74 million customers worldwide--including 30 million in the United States.

o The company said that nearly one-third of all people in the United States are employed by an entity that is protected by insurance coverage through AIG Commercial Insurance.

o AIG Retirement Services has 6.9 million customers, while American General Finance is serving more than two million families with $24 billion in loans.

According to the draft obtained by NU Online, "AIG does not intend to update this Presentation following its distribution. Although AIG believes the information included in this Presentation is accurate, AIG makes no representation or warranty as to its accuracy or completeness."

Despite AIG's pleas and support from regulators, the idea of more aid for AIG has received a hostile reaction from federal lawmakers.

Sen. Jim Bunning, R-Ky., at a March 5 Senate Banking Committee hearing, told Federal Reserve Vice Chair Donald Kohn: "You will get the biggest 'no' you ever got. I will hold the bill. I will do anything possible to stop you from wasting the taxpayers' money on a lost cause."

Sen. Robert Menendez, D-N.J., said the Fed was asking for "an open-ended check" that it would not get.

AIG and New York Insurance Superintendent Eric Dinallo, who has received the draft, said they had no public comment on the report.