It's Payback Time
Here's a surprise: AIG might pay back $170 billion of its $182 billion bailout.
By Daniel Gross
Slate.com
Posted Friday, March 12, 2010
AIG may be the only three-letter, four-letter word in the English language. The company ran into huge problems by selling insurance on financial assets without setting aside reserves to pay out claims. When the financial storm hit, no single private-sector company proved to be as messed up: The toxic issues surrounding its payments to Goldman Sachs on credit-default swaps, its absurd insistence on paying bonuses even as it racked up a $99 billion loss in 2008, the general lack of oversight by its executives. One number rankles above all: $182 billion—the total financial aid extended by the Federal Reserve and Treasury Department to AIG.
When you look at the financial markets as a whole, the post-crisis bailout efforts have worked out better than expected. Many of the financial market guarantees were lifted without having been used, and the Treasury is turning a profit on the central component of the TARP. But AIG has so far loomed as a gigantic rebuttal to the optimists, a symbol of everything that went wrong.
But it turns out that the efforts to prop up AIG are also working out much better than expected. AIG still owes the Fed and the Treasury a combined $127 billion. But—surprise!—AIG is paying a lot of its debts back. And there's a not too far-fetched scenario in which we come close to breaking on our reluctant investment in the company.
Here's how: The Fed in September 2008 extended an $85 billion credit line to the company. AIG paid down $40 billion of that debt when the Treasury Department injected $40 billion of taxpayer funds into the company. But even after the assist, AIG has effectively drawn down about $51 billion of that line. In March 2009, AIG turned over two of its crown jewels, AIA (Asian insurance operations) and Alico (the U.S. life insurance unit) to the Fed in exchange for converting $25 billion of that credit into preferred shares in the two subsidiaries. Once markets recovered, AIG would sell these two units and use the proceeds to pay back the Fed.
(More here.)
By Daniel Gross
Slate.com
Posted Friday, March 12, 2010
AIG may be the only three-letter, four-letter word in the English language. The company ran into huge problems by selling insurance on financial assets without setting aside reserves to pay out claims. When the financial storm hit, no single private-sector company proved to be as messed up: The toxic issues surrounding its payments to Goldman Sachs on credit-default swaps, its absurd insistence on paying bonuses even as it racked up a $99 billion loss in 2008, the general lack of oversight by its executives. One number rankles above all: $182 billion—the total financial aid extended by the Federal Reserve and Treasury Department to AIG.
When you look at the financial markets as a whole, the post-crisis bailout efforts have worked out better than expected. Many of the financial market guarantees were lifted without having been used, and the Treasury is turning a profit on the central component of the TARP. But AIG has so far loomed as a gigantic rebuttal to the optimists, a symbol of everything that went wrong.
But it turns out that the efforts to prop up AIG are also working out much better than expected. AIG still owes the Fed and the Treasury a combined $127 billion. But—surprise!—AIG is paying a lot of its debts back. And there's a not too far-fetched scenario in which we come close to breaking on our reluctant investment in the company.
Here's how: The Fed in September 2008 extended an $85 billion credit line to the company. AIG paid down $40 billion of that debt when the Treasury Department injected $40 billion of taxpayer funds into the company. But even after the assist, AIG has effectively drawn down about $51 billion of that line. In March 2009, AIG turned over two of its crown jewels, AIA (Asian insurance operations) and Alico (the U.S. life insurance unit) to the Fed in exchange for converting $25 billion of that credit into preferred shares in the two subsidiaries. Once markets recovered, AIG would sell these two units and use the proceeds to pay back the Fed.
(More here.)
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