Treasury Sells AIG Stake. Makes $22.7B Profit From $182B Bailout.

Treasury Sells AIG Stake. Makes $22.7B Profit From $182B Bailout.


So much for moral hazard…

9:39AM EST December 11. 2012 – WASHINGTON (AP) — The U.S. Treasury Department said Tuesday that it has sold all its remaining shares of American International Group (AIG), moving to wrap up the government’s biggest bailout of the 2008 financial crisis.

Treasury said it received $32.50 per share for its 234.2 million remaining shares, which represented a 16% ownership stake in the giant insurance company.

And let’s remember how much of AIG we owned…

Treasury conducted six public offerings of AIG stock the past 19 months, selling a total of 1.66 billion shares of the company. At the start of the sales, Treasury had owned 92% of AIG’s outstanding common stock.

Listen, nobody liked it, and AIG was at the heart of why we were plunged into The Great Recession.

But four years later we’re in a much stronger position. And let’s remember that the bailout happened under George W. Bush’s watch. Hardly somebody who believed in bailouts.

The moral of this story: extraordinary times sometimes call for extraordinary measures. This was one of them. And we did the exact opposite of losing our ass. And it only took 4 years.

Basically, it would have been catastrophically irresponsible to let AIG fail and just wait to see what would happen to the companies it was insuring against massive losses.

Last, but certainly not least…

With the AIG stock sales, the government has gotten back $380 billion, or more than 90% of the $418 billion it disbursed through TARP.

More as it develops…

  • Rob

    Well, when looking at this from the perspective of a “moral hazard”, the fact still remains that the message is: Companies that are “too big to fail” can take extreme risks because the government will bail them out when they fail. That it worked out well in this case doesn’t mean that it will work out well in all cases, hence “moral hazard”. And the moral hazard not only remains but has gotten much worse since 2008.

    And as far as the “great recession” goes…it was the Federal Reserve, by creating and maintaining the housing bubble, that created the moral hazard for investors and companies like AIG by creating the allusion that housing prices never fall, even in a recession. Yes, CDS’s, as they were being sold at the time, were a bad idea. But there wouldn’t have been the market for them if not for the “malinvestments” that resulted from the housing bubble.

    It’s simple-minded analyses like this that perpetuate the myth that government is, or has, the solution. The great recession was a direct result of government action, and the occasional “good” government action doesn’t outweigh the moral hazards hundreds of other government actions create…that’s my simple-minded analysis :-)

  • Tully

    I’m now positive you do not understand the meaning of the phrase “moral hazard,” Justin.

    It means betting against the odds because you’re not the one who has to take the loss if the bet loses. It does not mean that no moral hazard was involved if you win the bet despite the odds. In the case of the bailout funding of AIG, it was not the government or the Treasury that would take the loss, but the taxpayers.

    Yay (for taxpayers, not the government or Treasury) that this particular bet turned out on the plus side. That does not validate the claim that no moral hazard was involved or that said hazard is irrelevant. There was, and it doesn’t.

    [FWIW I did not see Rob’s comment until I went to unlock this comment of my own from moderation Limbo, and unlocked his while I was there.]

  • David P. Summers

    I agree with the article except for the opening line, “So much for moral hazard”. The issue wasn’t whether the government made money. Taking risks to help a company is still a favor, even if risk doesn’t materialize.

    I think you can make a case that suffering the moral hazard was worse than the alternatives on the grounds there was a need for urgent action. But had that not been true I would have let it go under. And even now, the question of what we do to make sure that companies don’t just assume they will get bailed out is a problem. Perhaps less of a problem than would might have happened if AIG had gone under at the point, but still a problem.

  • Tully

    The moral hazard does not abate because the risky bet with OPM was won. In fact, it compounds the perverse incentive.

  • khaki

    I’m going to have to agree with other posters. This result may have increased the likelihood of moral hazard in the future. But I’m sure all of us can also agree that having Elizabeth Warren on the banking committee will help offset the increased risk. Right? We all agree with that?

  • Don Kirk

    By the logic of this argument, moral hazard does not exist if the result is a profit. The taxpayers will never receive any pay-back of the first tranche of the TARP Chrysler bail-out, so the moral hazard only applies to Chrysler?

    There is no way of knowing in advance which bailouts will succeed or fail. What is quite clear, however, is that taxpayer bailouts are for the worst performing companies. The profit from AIG simply justifies future bailouts of uncompetitive corporations with inefficient services and unwanted products, and those future bailouts of America’s worst companies will always be ‘sold’ to the public by the example of AIG.

  • Tillyosu

    In other news, taxpayers stand to lose about $19 billion from the GM bailout. So, there’s that…

  • Tully

    I was about to add a note on that myself. Got your moral hazard right here…

    Treasury announces GM exit strategy; automaker buying 200 million shares from U.S.

    The Treasury has said it expects to lose $24.3 billion on the $85 billion auto bailout.

    Treasury also holds a 74 percent stake in Ally Financial Inc., the Detroit-based auto lender, as part of a $17.2 billion bailout.

    Last year, the government exited Chrysler Group LLC and booked a $1.3 billion loss on its $12.5 billion bailout.

    That does not include the $45.4B in tax-loss carry-forwards that the company would have lost in a true bankruptcy as compared to government-manipulated one that waived the rules, or the non-union job and pension losses from structuring the deal to favor the UAW.

  • Tyler

    Anyway it was good decision to save AIG. Goverment must take care of people first, billions after.