So How Did Those Government Bailouts Turn Out? So Far, It's a Mixed Bag
The bailout of AIG was ugly and wildly unpopular. And there are still plenty of things about the way it happened that deserve scrutiny and investigation—and huge swaths of people on both the left and the right that bonded over being furious about it and other things that happened in 2008.
But, calling it a "movie with a happy ending" or call it a "huge profit," some analysts think (not without exception) that it worked better than anybody could have anticipated. Apparently the government is selling off a large part of its stake in the insurance giant for a profit. Says The Wall Street Journal:
The sale will mark a step that seemed hard to imagine four years ago, when the New York insurer was effectively nationalized as part of a controversial financial-industry bailout. The U.S. will move closer to recognizing a profit on its largest rescue, which included as much as $182 billion of committed aid, and AIG will revert to being mostly nongovernment-owned, fulfilling a priority of Chief Executive Robert Benmosche.
If the politics and the message weren't particularly sound, at least some people think the method was.
So what's next?
With regards to AIG, Christy Romero, special investigator for the Troubled Asset Relief Program, is one of the those who doesn't believe that the government is turning a profit and is very skeptical of the way TARP is being managed. She told MarketWatch that she thinks it's high time for greater regulation of AIG (emphasis ours):
"AIG has to be designated as a systemically important financial institution. When you look at the name of the program that bailed out AIG, the systemically significant failing institutions program, it had only one participant, AIG. At the time of AIG’s bailout we were all told that this institution is so large and so interconnected that it has to be subject to regulation. "
We'll be hearing more from her soon:
"We also have other reports on the way. We’re going to report on the 2012 pay for the top-paid executives at Ally, GM and AIG. I think that is really important, people care about that. Another report we’re doing is on tax relief that TARP companies received."
In terms of what else the government bought and, in theory, needs to unload, there's a long way to go—and it's not clear how soon or whether it can recoup all of its money in General Motors, Ally Financial, Fannie Mae and Freddie Mac or other, smaller investments. This New York Times piece rounds it up, ProPublica has the numbers and this ProPublica story explains why unwinding TARP quickly actually may not be beneficial to taxpayers anyway. Tidbits from ProPublica's great post on the numbers:
Ultimately, the bailout of GM seems likely to result in the TARP's single biggest loss. But since the government still holds about a third of the company's stock (currently worth about $10 billion), we don't include it on our list of losers yet. It's possible the government will sell the stock for more than it's currently worth, recouping more of its investment.
For now, the reigning bust is the $2.3 billion investment in the bank CIT, which landed in bankruptcy less than a year after its bailout. Second on the list is Chrysler, which resulted in a $1.3 billion loss.
[T]he government has already turned a profit on its bank investments overall, because the biggest bailouts — particularly Citigroup and Bank of America (each received $45 billion) — resulted in large profits.