Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

AIG bailout spared Wall Street, watchdog says

By Tami Luhby, senior writer


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.

"It is clear that taxpayers remain at risk for severe losses," the panel wrote. To top of page

Search for Jobs

Index Last Change % Change
Dow 19,827.25 94.85 0.48%
Nasdaq 5,555.33 15.25 0.28%
S&P 500 2,271.31 7.62 0.34%
Treasuries 2.47 0.01 0.33%
Data as of 12:58pm ET
Company Price Change % Change
Bank of America Corp... 22.64 0.11 0.49%
General Electric Co 30.53 -0.68 -2.18%
Bristol-Myers Squibb... 49.23 -6.26 -11.28%
CSX Corp 44.33 -1.18 -2.59%
Chesapeake Energy Co... 6.69 0.07 1.06%
Data as of Jan 20
Sponsors

Sections

Shares of several uranium miners are soaring this year on hopes that Donald Trump will commit more investments to nuclear power. But investors need to get careful. The stocks are as volatile as radioactive elements. More

President Trump promised to 'buy American and hire American.' He says his policies will create 25 million new jobs, the most of any U.S. president in history. CNNMoney lays out just how hard that will be. More

Apple is suing Qualcomm for allegedly charging 'excessive royalties' and withholding payments in retaliation for Apple cooperating with a regulatory investigation into the chip supplier. More

If you're smart about when you first claim Social Security, you can increase your benefits and reap the rewards for the rest of your life. More