AIG bailout that angered Bernanke to end with Treasury sale

U.S. to exit AIG stake with offering of 234 million shares

Obama Outraged

Bernanke wasn’t the only leader to fault AIG. Dana Perino, a spokeswoman for President George W. Bush’s White House, called “despicable” expenses from a conference sponsored by AIG for independent agents at a California resort after receiving U.S. aid. President Barack Obama said bonus payments to traders at the money-losing Financial Products unit were an “outrage.”

Then-CEO Edward Liddy told Congress in 2009 of threats, including one that said AIG executives should be “executed with piano wire around their necks.” AIG stripped its logo from employee badges and charge cards after staff were harassed.

“It really stuck in the public’s craw that trillions of dollars of financial support were being provided to the commanding heights of the American financial system, and those guys were still paying themselves huge bonuses,” said Jim Millstein, the former Treasury chief restructuring officer and now CEO of advisory firm Millstein & Co. “I have real sympathy with the public in this regard.”

Leaner, Hungry

Benmosche restored the AIG name this year to units, introduced a new logo and agreed to sponsor New Zealand rugby teams including the All Blacks. He said after reaching the plane-unit deal that AIG is now “leaner, more focused and hungry for tomorrow.”

Republican Roy Blunt, now a Missouri senator, said aid was a “backdoor bailout” of banks, as AIG turned over more than $90 billion since its rescue to counterparties on housing bets such as Deutsche Bank and Goldman Sachs. Democrat Elizabeth Warren, elected this year as a Massachusetts senator, said AIG benefited from a “stealth bailout” that allowed the company to minimize its taxes based on losses accumulated in prior years.

In all, as much as $12.8 trillion was spent, lent or committed to bolster financial firms and automakers. Lenders including Goldman Sachs and JPMorgan took rescue funds that were repaid with interest in 2009. Hartford Financial Services Group Inc. and Lincoln National Corp., the other U.S. insurers to get bailout funds, repaid the government in 2010.

‘Without Cost’

“The government set out to prevent the collapse of the financial system,” Millstein said. “They did it over two administrations extraordinarily effectively and without cost to taxpayers.” The U.S. still owns stakes in firms including Ally Financial Inc. and General Motors Co.

The bailouts helped push Congress to pass the Dodd-Frank law to limit taxpayers’ cost on failing firms. AIG in October became the first non-bank to say it’s under consideration by regulators to be labeled a potential risk to the financial system, a designation that could lead to tighter capital rules.

“AIG exploited a huge gap in the regulatory system” and its Financial Products unit operated without oversight as it made derivative bets on subprime loans, Bernanke told lawmakers in 2009. “This was a hedge fund basically that was attached to a large and stable insurance company.”

<< Page 2 of 4 >>

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome