Recently, according to the Congressional Oversight Panel, the US government, if it had acted sooner and with more focus, would have been able to privately fund the AIG bailout. As it stands, taxpayers picked up the $182 billion check, neither the government nor AIG could pay. Most of the billions were used to payoff AIG’s obligations to Wall Street trading partners on credit default swaps. “(The bailout) distorted the marketplace by transforming highly risky…bets into fully guaranteed payment obligations,” reads a part of the Congressional Oversight Panel’s recent report.
The panel was introduced in 2008 by Congress as a way to micromanage the Treasury Department’s $700 billion bailout program. A good portion of those paid from the AIG bailout were beneficiaries of federal bailouts themselves, including Bank of America Corporation ($5.2 billion in AIG money), Merrill Lynch ($6.8 billion), Goldman Sachs Group, Inc. ($12.9 billion) and Citigroup, Inc., ($2.3 billion). “U.S. taxpayers were called on to bear the full cost of the rescue, including repayment of some of the most sophisticated companies in the world,” said panel chair, Elizabeth Warren.
How and when taxpayers will ever be repaid, remains unclear. “The uncertainty lies in whether AIG’s remaining business units will generate sufficient new business to create the necessary shareholder value to repay taxpayers in full,” reads another segment of the report.
According to Andrew Williams, Treasury Department spokesman, “…it is easy to speculate about how things might have been done differently had there been more time… at that perilous moment, we took the actions that were most likely to protect American families and businesses from a catastrophic failure of another financial firm and an accelerating panic.”
As expected, both AIG and the Treasury Department are optimistic about the company’s overall value. The Congressional Budget Office estimates taxpayers will ultimately lose, roughly, $36 billion. Most of the money to repay the government will come from the sale of assets.
Back in 2007, when the subprime mortgage bubble burst, “credit default swaps,” which insured against default of the securities tied to mortgages, crashed and crashed hard. This spawned Wall Street’s downward spiral as giants such as Lehman Brothers and AIG, slipped.