- The Washington Times - Thursday, September 30, 2010

AIG, the poster child that epitomized everything bad about the nation’s financial bailouts, announced a plan Thursday to repay the government — possibly with profits.

It marked a final chapter in the sordid bailout tale, which — though it proved mostly a success at reviving failing financial goliaths, ultimately at little cost to taxpayers — continues to generate public anger toward legislators who provided the funds.

Two years after it received the largest government bailout in history, worth more than $180 billion, American International Group Inc. said it would sell company assets to repay loans from the Federal Reserve and provide the Treasury with 1.6 billion shares of common stock, enabling the government eventually to recoup the rest of its money through stock sales.

If the company’s stock stays near Thursday’s price of almost $40 a share, that would yield a $16 billion profit for the Treasury, adding to profits the government already has earned on its bailouts of JP Morgan, Goldman Sachs and other big banks.

House Speaker Nancy Pelosi, California Democrat, issued a press release declaring a victory for Democrats who pushed through a $700 billion bank-bailout program against vehement opposition from many Republicans and the public at large in the wake of AIG’s catastrophic near-failure and bailout in September 2008.

AIG eventually received $70 billion in funding from the bailout fund, although most of its original bailout was provided by the Fed through massive loans that led to a federal takeover of what was then the world’s largest insurance company.

While Democrats have taken a pummeling in public opinion over the bank bailouts, which began under President George W. Bush, many Republicans also voted for the program at Mr. Bush’s urging, and some have paid a heavy price by losing seats in primary elections this year.

AIG’s road map to once again become a private company also seems a vindication for Treasury Secretary Timothy F. Geithner, who arranged the AIG bailout as president of the New York Fed two years ago and then as Treasury chief recently negotiated terms of the payoff.

“The exit strategy announced today dramatically accelerates the timeline for AIG’s repayment and puts taxpayers in a considerably stronger position to recoup our investment in the company,” he said.

But Mr. Geithner’s job often seemed to be on the line after the unpopular and messy AIG bailout burgeoned into a major scandal and provoked a raft of hearings in Congress during which Republicans called for his resignation.

Things only got worse for him when shortly after taking the reins as Treasury secretary, AIG announced lavish bonuses for employees of the financial-products division, which was responsible for causing the massive losses that led to the bailout. The division provided a kind of credit insurance on complicated derivative securities that blew up and caused the financial collapse in the fall of 2008.

Anger over AIG’s audacity at providing generous compensation to many of the people who cost the taxpayers so much money — with the Treasury’s and Fed’s acquiescence — provoked another round of outrage, hearings and a drive in Congress to limit executive pay and perks that continues to this day.

Angry legislators across the political spectrum also cited the Fed’s involvement with AIG in a bid to defeat Fed Chairman Ben S. Bernanke’s bid for a second term early this year. While Mr. Bernanke overcame the opposition, like Mr. Geithner, he remains scarred from his battles with Congress over AIG.

AIG’s monumental bailout, which the Fed maintained was unavoidable, given the limited legal authorities it had at the time, was a principal reason that Congress rewrote the banking laws to prohibit the government from ever again bailing out such “too big to fail” financial giants.

The financial-reform law enacted this summer now extends the reach of federal regulators to insurance firms like AIG, which previously were regulated only by states, and sets up a procedure to dismantle failing firms and sell off the parts to pay for any temporary taxpayer assistance.

Story Continues →