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Taxpayers May Profit Billions From AIG Bailout

When all is said and done, AIG expects taxpayers to profit from $5B to $10B on the company’s 2008 rescue.  Too big to fail, AIG ultimately received a $140 billion bailout from taxpayers in 2008 to avoid a feared cascading collapse of our financial system.  In return, the US Government received nearly an 80% equity stake in the giant insurer.  The Treasury has been steadily reducing its position in the insurer, whose shares have recently recovered to trade above the government’s $28.73 break-even point.  This will be an incredibly fortunate outcome based on the unprecedented public bet on AIG. 

In a March 27th interview on CNBC, Bob Benmosche, CEO of AIG said the company now has an "awful lot of capacity" to buy back stock and that he assumes most of those buybacks will come from the U.S. Treasury's current 70 percent stake in the company.

Then on April 13th, Robert Miller, Chairman of AIG indicated on Bloomberg TV that the U.S. Treasury might exit its stake in American International Group Inc. (AIG) within the next year.  

"It will be Treasury's choice as to when they want to liquidate" their shares, Miller said. "But it is certainly within the realm of possibility that it could happen within the next 12 months."

AIG, the American International Group, is an international insurance and financial services organization, with operations in approximately 130 countries and jurisdictions.  A downturn in the US economy in 2008 exposed the risks in the sub-prime mortgage-backed securities held by AIG and the now bankrupt Lehman Brothers.  The financial services arm of the company in AIG's London unit sold credit protection in the form of credit default swaps (CDSs) on these collateralized debt obligations (CDOs) that had by that time declined in value. By September 16, 2008, AIG's share prices had fallen over 95% to just $1.25 causing a liquidity crisis following the downgrade of its credit rating.  AIG’s financial obligations were so large and intertwined throughout the US and  international banking systems that it’s imminent collapse was feared to lead to an economic depression the likes of 1929.  Congress intervened  by passing the Emergency Economic Stabilization Act of 2008 to rescue the nation’s banking system with Federal funds under the Troubled Asset Relief Program (TARP).  

 


Discussion

John B Sullivan, CIC

Monday, April 16, 2012 at 6:11pm PDT

I think it’s important to note that AIG’s troubles came from its ownership in a financial organization not its insurance company. Some public perception was that this was an insurance company problem leading us into a recession. That just wasn’t the case. In fact, AIG’s insurance operations were rock solid and ultimately saved the entire company. It was banks that failed, not insurance companies. Their investments are highly regulated and they have remained solid through out the recession.


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