Excerpts
RAY SUAREZ (Newshour): The federal government and the bailed-out insurance giant AIG announced a deal today for the company to pay back the bulk of its massive debt to the Treasury.
At the height of the financial crisis, the Treasury and the Federal Reserve agreed to spend more than $180 billion if needed to rescue the company. AIG ultimately received more than $130 billion. It still owes over $100 billion. Under the plan, the U.S. Treasury will gradually sell off its majority stake of the company. AIG will also sell more of its insurance units to repay the Treasury.
In an audio recoding on AIG's Web site, the company's chief executive, Robert Benmosche, predicted, taxpayers would ultimately come out ahead.
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ROBEN FARZAD, senior writer, "Bloomberg BusinessWeek": The idea is not for the government to sit out there and be a mutual-fund-like holder of these common shares. I mean, they're not portfolio managers out there.
They did this holding their nose and dragging their feet. They're looking to sell the shares in an orderly manner, but then in an expeditious manner. I mean, look, they want to off-load this stuff and get hard cash back. It's a huge black eye, I mean, the September 2008 kind of gun-to-the-head negotiations, with the entire economy at the brink.
And I think it's critical for Treasury to have this type of a symbolic victory, but I disagree with what Robert Benmosche said in the recording there. I think it's incredibly deceptive to think that the taxpayer and the system is going to be made whole with even $100 billion or $150 billion paid back.
Truth be told, I mean, this exposed the entire systemic rot that was happening. And the government, and the Federal Reserve, and the Treasury, and the New York Fed have stepped in and taken unprecedented measures at multiples the $180 billion bailout sticker price.
You still have the Federal Reserve pursuing quantitative easing, which is going out there and actually conjuring money out of thin air to buy toxic assets, the very likes of these assets that were backed and insured by AIG.
So, while it might make sense from a headline perspective -- yes, the taxpayer is going to make potentially a profit on the $130 billion or $140 billion going out three or four years -- it's certainly cold comfort for an economy that's lost trillions.
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RAY SUAREZ: Well, Louise, let's reel back a little bit and remind people how the federal government ended up owning those 92 homes in the first place. What happened?
LOUISE STORY, The New York Times: Well, if you remember, back in September 2008, it was right after Lehman Brothers failed. The economy was on the brink. There was major panic.
And AIG, one of the things they did that really, really is the reason they failed is, they wrote all these insurance contracts to banks. So banks like Goldman Sachs, and Deutsche Bank, and Merrill Lynch, they had gotten AIG to insure them against losses on their mortgage bonds.
And, sure enough, when the mortgage market went south, AIG was paying out all these insurance claims to the banks. They couldn't afford it. And so the government stepped in and bailed out AIG. This was very controversial, because a lot of the money the government put into AIG went right out the back door to the banks who had contracts with AIG. And that's part of the reason this has been one of the most controversial bailouts.
RAY SUAREZ: So, Roben, an indirect bank bailout to even more institutions than we were aware of when it was happening?
ROBEN FARZAD: Yes. They got -- they got bailed out for the sins of Wall Street. I mean, you talk to old-school AIG executives, and they say that they were a patsy, or that they were crucified for everybody else's sins, that it was a transitive backdoor bailout. And, in reality, that's what it was.
And the thing that held the entire system hostage wasn't just that AIG being allowed to fail would subsume the entire system, but AIG was managing pensioner funds, 401(k)s, insurance plans. Municipalities were backing bonds with AIG. I mean, it was just unthinkable, in the haze of those terrifying days of September 2008 and October, to let this thing just fall and see how the dust cleared afterwards.
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