The US Government has come under stinging attack for its “failure to exhaust all options” before deciding to rescue insurance giant AIG in 2008.

The Congressional Oversight Panel, which was set up to examine the Troubled Asset Relief Program, says taxpayers still risk severe losses from the rescue.

Its report issued last week agrees that the rescue of AIG and other initiatives helped avert a financial collapse, but notes “this victory came at an enormous cost”.

“Billions of taxpayer dollars were put at risk, a marketplace was forever changed and the confidence of the American people was badly shaken.”

The panel says it’s still not clear whether US taxpayers will ever fully recoup the $US182 billion ($212.5 billion) paid to keep AIG afloat.

It estimates that the bailout could still end up costing some $US36 billion ($42 billion) despite “bullish” reassurances from AIG and the Federal Treasury.

The Government is also found at fault in the report for not pushing the private sector harder to help in funding the AIG rescue package.

“There is no doubt that a private rescue would have been difficult, perhaps impossible, to arrange,” the report says. “But if the effort had succeeded, the impact on market confidence would have been extraordinary, and the savings to taxpayers would have been immense.”