Congressional Panel Criticizes Government Over AIG Bailout

A watchdog panel says it’s still unclear whether U.S. taxpayers will ever fully recoup the $182 billion they plowed into American International Group Inc., and the government should have used up all its options before bailing out the crippled insurance titan.

The government could have acted sooner and more aggressively to engineer a privately funded rescue of AIG in September 2008, the Congressional Oversight Panel says in a new report released this month.

The bailout had a “poisonous” effect, the report says, because now the markets believe the government will commit taxpayer money to prevent the collapse of big financial institutions and to repay their trading partners.

AIG executives and the Treasury Department have given “optimistic” assessments of the company’s value, the report says, noting that the Congressional Budget Office estimates that taxpayers will lose $36 billion. A large part of the money needed to repay the government will come from the sale of assets.

“The uncertainty lies in whether AIG’s remaining business units will generate sufficient new business to create the necessary shareholder value to repay taxpayers in full,” the report says.

The oversight panel was created by Congress to oversee the Treasury Department’s $700 billion financial bailout program that came in at the height of the financial crisis in the fall of 2008. AIG was the largest of the government rescues.

“We want a profit” on taxpayers’ behalf, panel chair Elizabeth Warren said in a conference call with reporters earlier this month. “We are holding Treasury’s feet to the fire.”

Responding to the report’s criticisms, Treasury spokesman Andrew Williams said, “In retrospect, it is easy to speculate about how things might have been done differently had there been more time.”

The alternative options for saving AIG suggested by the report “overlook the basic fact that the global economy was on the brink of collapse and there were only hours in which to make critical decisions,” Williams said. “At that perilous moment, we took the actions that were most likely to protect American families and businesses from a catastrophic failure of another financial firm and an accelerating panic.”

As for Treasury and the Federal Reserve securing a privately funded rescue, Williams said AIG and the New York Fed had reached out to the private sector but couldn’t find any companies willing to lend it the tens of billions needed to avoid bankruptcy.

The Federal Reserve also said it disagreed with the view that there were better alternatives at the time.

“It is clear that the nation urgently needs a regulatory framework and resolution regime that would give policy-makers much better tools for dealing with such situations in the future,” the Fed said in a statement.