Economy
1:45 pm
Tue September 11, 2012

U.S. Treasury Cuts Stake In AIG With $18 Billion Sale

Originally published on Tue September 11, 2012 6:57 pm

Transcript

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From NPR News, this is ALL THINGS CONSIDERED. I'm Audie Cornish.

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And I'm Melissa Block. The U.S. government made a big chunk of money in the stock market today. It sold more than 630 million shares in AIG, the American International Group. The government reluctantly acquired the shares when it injected billions of dollars into the insurance giant to keep it from collapsing. The Treasury Department says the government turned a $15.1 billion dollar profit on the deal. Here's NPR's John Ydstie.

JOHN YDSTIE, BYLINE: Most people thought the government would lose a sizeable portion of its $182 billion dollars when it rushed in to prop up AIG during the financial crisis four years ago. The firm had invested billions of dollars in what turned out to be toxic financial assets. The government feared its collapse would tank the whole financial system. But now the company has recovered to a level that allows the government to sell it at a profit.

JIM RYAN: At the opening of this morning, a huge amount of shares traded.

YDSTIE: That's Jim Ryan, a senior analyst at Morningstar.

RYAN: We think that this signifies that the firm is basically back on its own and free to chart its own course.

YDSTIE: In fact, the demand for AIG shares, priced at $32.50, was so great the government sold more than initially anticipated. By the end of the day, the government went from a majority shareholder in the company, to owning under 16 percent of its shares.

DOUG ELLIOTT: This is definitely an occasion to celebrate.

YDSTIE: Doug Elliott is a former investment banker and now a fellow at the Brookings Institution.

ELLIOTT: It's further evidence that the financial rescue packages that we put in place that the public hated so much were very much worth it.

YDSTIE: Not only did the government's much reviled TARP program stabilize a financial system in danger of collapse back in 2008, says Elliott, it did so at little or no cost. At present, it looks like the $700 billion program will turn a profit overall, even though the government is still $27 billion dollars in the red on its bailout of General Motors. The cost of bailing out mortgage giants Fannie Mae and Freddie Mac, not part of the TARP, could still cost the government an additional $100 to $150 billion. Neil Barofsky, the former Treasury inspector general appointed by President George W. Bush to oversee the TARP program, has a different view than Doug Elliott. He says financial profit does not provide a full measure of the program's success or failure.

NEIL BAROFSKY: The dollars and cents, while maybe a satisfying way to try to keep score of whether a bailout is successful or not, you have to look back to the original intentions, which was to spur a robust economic recovery, which we haven't had, to address the rampant foreclosure crisis, which we didn't do.

YDSTIE: In addition, says Barofsky, the government bailout has resulted in even larger U.S. financial institutions than the country had before the crisis. Those firms remain too big to fail, he says. And he argues government reforms have not eliminated the possibility of future bailouts.

BAROFSKY: And that's a very dangerous message which will continue to destroy, in many ways, the normal functioning mechanisms of the market that are supposed to impose discipline on these companies. It gives incentives for them to pile on risk and that, I believe, is eventually going to eventually lead us to another financial crisis. And that may be the most important legacy of the AIG bailout.

YDSTIE: Barofsky argues the right approach to the problem is to limit the size of financial institutions, so they can't threaten the whole financial system. John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.