Today the Congressional Oversight Panel released a new report on the fall 2008 bailout of AIG, and its findings are damning for the federal regulators responsible for the bailout. The report claimed that the bailout has had a “poisonous” effect on markets, and released this laundry list of regulatory malfeasance, from the Huffington Post:
· Policymakers had several options to resolve the firm’s troubles, rather than a “binary” choice of bailout or failure;
· Federal regulators could have acted earlier, potentially saving taxpayers from a $182 billion investment in the giant insurer;
· The government-led private-sector effort to save the firm primarily relied on just two financial firms and a small group of law firms rife with conflicts of interest;
· Policymakers involved in the rescue continue to change their public rationale for rescuing AIG with taxpayer cash, perhaps for political considerations;
· Even more foreign banks than previously disclosed were direct beneficiaries of the taxpayer bailout;
· It was “unlikely” a more muscular regulatory agency would have caught the insurer’s problems given that the firm’s own management didn’t know what was going on;
· And despite the panel’s mission of auditing how the government responded to its biggest intrusion in the financial markets since the Great Depression, some firms, including Goldman Sachs, which taxpayers bailed out with $10 billion in cash and nearly $21 billion in debt guarantees, continue to refuse to turn over key documents, the panel said in its report. Goldman faces a multitude of investigations regarding its subprime-era practices.
One of the Panel’s members, J. Mark McWatters (who replaced Rep. Jeb Hensarling), added some details about the AIG bailout’s cost to taxpayers in the report:
Other than the bailouts of Fannie Mae and Freddie Mac, the rescue of AIG has required the allocation of more taxpayer funded resources than any other similar action undertaken by the government since the inception of the current economic crisis.
McWatters then notes that the CBO has quadrupled its estimate of the cost of the TARP investment in AIG just in the past few months, from $9 billion to $36 billion, a troubling fact considering that market conditions have only improved since the bailout was initiated. He also adds some context to those numbers:
As I have done in prior reports, I think that it is instructive to add some perspective to the magnitude of the loss the taxpayers may suffer as a result of the AIG bailout. By comparison, for fiscal year 2011 the National Institute of Health (NIH) has requested $765 million for breast cancer research, and the latest Nimitz-class aircraft carrier commissioned by the Navy cost approximately $4.5 billion. It is entirely appropriate for the taxpayers who funded the TARP program to ask if the bailout of AIG with a CBO estimated cost of $36 billion merited 47 years of breast cancer research or eight (8) Nimitz-class aircraft carriers. The “guns v. butter v. AIG” comparisons clearly demonstrate that our national resources are indeed limited and that the bailout of AIG will require the government to reduce expenditures, increase tax revenue or both.
Of course, the real cost is not the fiscal costs but instead are, as the report suggests, the damage that the government’s arbitrary actions have done to people’s trust in the fairness of the market. “The rescue of AIG dramatically added to the public’s sense of a double standard — where some businesses and their creditors suffer the consequences of failure, and other, larger, better connected businesses do not,” the report concludes, according to Huffpo. In other words, it undermined the core precepts of capitalism.
And in case you are wondering just how the NY Fed and the Treasury conspired to give Goldman Sachs, the other big banks, and foreign banks a “backdoor bailout” through the AIG rescue, the report includes this handy chart that should clear everything up: