NEW YORK (CNNMoney.com) -- The federal government could have pressed the private sector to help rescue AIG when the company was on the verge of collapse in September 2008, a government watchdog has found. Instead, it let Wall Street off easy.
The government's $182 billion bailout of the global insurer has left taxpayers holding the bag, while ensuring that all of AIG's creditors and business partners are paid in full, said a Congressional Oversight Panel report released Thursday.
The oversight panel, which is charged with monitoring the government's use of Troubled Asset Relief Program funds, criticized the Federal Reserve and Treasury Department for repeatedly saying they had to choose between letting the world's largest insurer fail or rescuing it.
The government chose not to push major lenders to privately bail out AIG or propose a rescue that combined public and private funds. Nor did it require AIG to negotiate with its business partners, or counterparties, as a condition of its rescue.
Since AIG's counterparties emerged unscathed, sophisticated investors who participate in the risky derivatives market now think that taxpayers will come to their rescue as well, the report said.
"The government distorted the marketplace by transforming highly risky derivative bets into fully guaranteed transactions, with the American taxpayer standing as guarantor," the panel wrote.
It remains unclear whether taxpayers will recoup the funds they extended AIG, the panel said. Just last week, the sale of AIG's Asian life insurance unit for more than $35 billion went bust when the buyer, Prudential PLC, sought a lower price.
Nike is opening up shop on Amazon.com and the company plans "big shifts" over the coming year. More
Proposing big tax cuts is much easier than figuring out how to pay for it all. Offsetting the cost of cuts will be one of the biggest hurdles for Republicans. More
In 1998, Ntsiki Biyela won a scholarship to study wine making. Now she's about to launch her own brand. More
When you're making big career decisions, you turn to your mentors and your trusted peers. But how do you find these mentors and trusted peers in the first place? More