The following editorial appeared in the Milwaukee Journal Sentinel on Thursday, Sept. 18:

The government nationalized one of the world’s largest insurers Tuesday night. Government officials won’t describe it that way, of course, but that’s what it amounted to.

The Federal Reserve gave American International Group an $85 billion bridge loan so that the company can sell off parts of itself in an orderly fashion. The government threw out management – a good thing – and gained rights to 79.9 percent of AIG stock. The terms of the loan are rigorous, with the government demanding credit-card-like rates. The Fed claims “the interests of taxpayers are protected” because this monster loan is backed by AIG collateral.

Taxpayers should be skeptical. No banks would touch this deal, which calls into question the value of that collateral, and there is a real risk that the government will be forced to lend the company even more money down the road.

Worse, despite the tough terms, the Fed has bailed out a company that it doesn’t oversee and doesn’t do business with directly. Count on the Fed and the Treasury Department – not to mention Congress – to hear from other struggling companies.

The government was rightly concerned about the ripple effects of an AIG collapse. There are signs that the financial crisis is spilling over into investments, such as money market funds, that long have been regarded as safe. And AIG’s aggressive moves into insurance products that guard against default on assets tied to corporate debt and mortgage securities meant that the failure of AIG might have forced financial institutions here and abroad to take big write-downs.

So, yes, there is a good argument for the government’s action in the case of AIG. But after refusing to bail out Lehman Brothers last weekend, the government is sending mixed signals. And there is a risk that the concept of “too big to fail” is giving financial institutions, automakers and perhaps others the idea that the federal government is some sort of corporate welfare agency.

David Leonhardt, writing in The New York Times on Tuesday, compared the current crisis in the financial system to the bailout of Chrysler Corp. in 1979. The reasoning then was strikingly similar to the arguments we’re hearing today: Executives argued that Chrysler’s failure would cause unacceptable damage to the American economy.

Though that buyout is still widely seen as successful (Chrysler survived, even thrived, for years), the companies, formerly known as the Big Three, learned from the experience that business as usual would be sufficient. Arguably, that allowed foreign competitors to eat their lunch.

What if Chrysler had been allowed to fail? As Leonhardt notes, some experts believe that the pieces would have been reconstituted into a smaller, nimbler company, which might have pressured the other domestic automakers to fix their chronic problems. Instead, they are back on Capitol Hill, hats in hand.

Perhaps AIG is a special case. Even if it is, the government needs to make it clear that the federal checkbook has limits.