American International Group Inc. (NYSE:AIG) chief executive Robert Benmosche believes the government-supported insurer can soon cut its cord with Uncle Sam as it works to repay its remaining $26.5 billion in debt to the Federal Reserve. But taxpayers and others looking forward to an AIG free of its obligations to the government will likely have to wait awhile for that wish to be fulfilled.

Paying back the Fed would involve a massive multibillion-dollar initial public offering of AIG's Asian life insurance unit American International Assurance Co. Ltd. Even if the insurer accomplishes that, it will remain a taxpayer burden until it repays another $49 billion owed to the Treasury under the Troubled Asset Relief Program.

"Once we have succeeded in both monetizing AIA and Alico [American Life Insurance Co.], we believe we will be well within striking distance of completing our repayment of the Fed," Benmosche said in a prerecorded message last week detailing AIG's second-quarter earnings performance. AIG has commenced talks with the government about a "complete government exit" and over time expects to fully repay taxpayers, he added.

The key phrase here is "over time." Let's quickly recount where AIG stands in its fundraising efforts.

Metropolitan Life Insurance Co. in March agreed to buy Alico for $15.5 billion and recently priced a roughly $3 billion stock offering to help fund the deal. So that looks on track.

AIG revisited its AIA offering plans when it failed to complete a roughly $30.4 billion sale in June to Prudential plc (NYSE:PUK). When AIG had first accelerated plans for an AIA offering in early 2009, market speculation suggested it would sell at least 25% of the unit and raise between $4 billion and $10 billion.

While IPO markets have thawed, a $10 billion IPO may be easier said than done. "I don't know who would be out there for something of this size right now," said CreditSights Inc. analyst Rob Haines in June.

AIG's aircraft leasing business International Lease Finance Corp. may pitch in to reduce the Fed loan. An AIG spokesman said in the next two weeks ILFC plans to "go back to the capital markets" to try to raise $4 billion, declining further specifics.

Assuming the AIA plans go without a hitch -- a large assumption given recent events -- AIG could, indeed, find itself within striking distance of meeting its obligations to the Fed. But the small matter of its TARP funds will remain. Simple math dictates that a company with a roughly $5.5 billion market capitalization and about $2.8 billion in cash may have a tough time repaying $49 billion in TARP funds. However, it did manage to nearly cut its $180 billion government rescue package in half since its September 2008 meltdown, so anything is possible.

As long as the Fed debt remains, AIG's earnings suffer. Despite generating second-quarter operating income of $2.2 billion, the company reported a $2.2 billion net loss thanks in part to $557 million in Fed loan interest.

So Benmosche has ample motivation to sever AIG's ties to the government. But his fervent wishes are likely to be insufficient as inducements to a market that remains volatile.