The government keeps sinking money into AIG; next up, automakers and homeowners!

In the 1980s, Tom Hanks got conned into buying a cheap lemon of a house in the movie The Money Pit. The problem, of course, was that the more money Hanks and his girlfriend put into the house, the more calamitous its self-destruction. During one scene, Hanks flicks on the light in the kitchen only to watch flames spread along the circuit and across the kitchen wall. Suddenly, wall outlets start exploding, blenders start melting, and Hanks’ futile splashes of water can’t put the fire out. Realizing it’s best to try and disconnect as many appliances from the crisis as possible, Hanks unplugs the coffee maker but doesn’t get to the TV before it explodes. Eventually, he staggers to his bedroom wearing a T-shirt charred by the kitchen’s meltdown.

Figuring the crisis has ended, Hanks tries to take a bath. After pouring water into the tub, it falls through the floor and shatters. Hanks, staring down at the wreckage, starts wheezing a violent laugh; he points at the floor and convulses with sobbing, exhausted guffaws.

I have to imagine Henry Paulson feels a lot like Tom Hanks right now.

The dawn of Monday morning brought news that despite the sinking of $123 billion of taxpayer money into mega-insurer AIG, the company is nowhere near fixed. (Remember, AIG is in the business of offering credit-default swaps, which are essentially insurance plans for mortgage bonds.) So the U.S. government is revising the bailout and buying $40 billion of AIG’s stock through the $700 billion bailout fund. In all, taxpayers will have invested about $150 billion in AIG. (It’s not $163 billion because the government renegotiating some of the original loan’s terms.)

The problem is that AIG is even shoddier than we originally thought. From the beginning of the credit crisis, officials were telling us that transparency was a major issue. Nobody—including the executives at the banks—knew how much trouble the banks were in, because the toxic assets were so complex. In AIG’s case, the bailout’s original monies were used for collateral so it could honor its clients’ insurance plans. Now, in a twisted and convoluted machination, AIG is going to try to buy the toxic assets itself so it can recoup its insurance collateral. (We’ll mercifully spare you the rest of the details.)