Ideologues will never admit it, but TARP is looking like an effective government intervention in the failed capital markets. Little has been done to make sure that it doesn't happen again in the view of critics.
Today, the U.S. Department of the Treasury announced that AIG repaid taxpayers an additional $1.5 billion on one of the most unpopular government bailouts during the Great Recession. With this payment, Treasury’s preferred equity investment related to AIG has now been repaid in full. However, the federal government’s remaining outstanding investment is now $45 billion. Critics call this socialism for the rich.
During the financial crisis, overall support for AIG through Treasury and the Federal Reserve Bank of New York totaled approximately $182 billion. The remaining $45 billion investment consists of Treasury’s investment ($35.7 billion) for which it holds 1.248 billion shares of AIG common stock a whopping 70% of outstanding common stock. Then there is the Federal Reserve Bank of New York, which lent $9 billion of mostly borrowed taxpayer money to AIG.
“In the dark days of the financial crisis, when commitments to AIG totaled $182 billion, few would have believed that we’d already be able to reduce that amount by more than 75%, or that we may be able to recover every single dollar invested in the company,” said Assistant Secretary for Financial Stability Tim Massad.
Today’s $1.5 billion repayment fully retires the government’s remaining preferred equity investment in the AIG-owned entity AIA Aurora LLC (AIA SPV) – a special purpose vehicle- aka financial engineering – that holds ordinary shares in AIA Group Limited (AIA). Under a previous agreement between AIG and Treasury signed earlier this month, AIG was not required to repay this preferred equity investment until May 2013.
In March 2012, Treasury has recovered more than $14.6 billion on its investment in AIG. That includes $6 billion in proceeds from the sale of common stock and $8.6 billion in repayments of the preferred equity interests.
Today’s announcement is part of Treasury’s ongoing election year efforts to wind down the Troubled Asset Relief Program (TARP). More than 80% ($333 billion) of the $414 billion funds disbursed for TARP have been recovered to date through repayments and other income.
