Oh, Hank.
In Wednesday’s Wall Street Journal, the AIG godfather inquires “why did we nationalise AIG?”
He’s puzzled, but thinks that the government and Goldman Sachs may have the answer (our emphasis):
The recently released list of businesses bailed out by the Federal Reserve was not as surprising to me as it was to many members of the general public.
What is clear from the list is that the notion of equal protection ensconced in the Constitution was missing in September 2008. Rather than trying to spread both the burden and benefit of the bailout evenly among members of the U.S. financial services industry, key decision makers at the Fed and Treasury arbitrarily determined which companies should become wards of the federal government (AIG) and which should be permitted to live on (Goldman Sachs and Morgan Stanley). Goldman Sachs was permitted to live by enjoying markedly lower interest rates and access to credit facilities amounting over time to approximately $600 billion.
Federal decision makers had six months following the Bear Stearns collapse in early 2008 to formulate an effective response to foreseeable liquidity difficulties in the U.S. financial-services industry. Instead, the bailout turned out to be a rush for funds that benefited some and punished others. Goldman Sachs, Morgan Stanley and others were permitted to become bank holding companies and have access to cheap federal funds, while AIG was denied this opportunity for reasons never fully explained. It is important that an independent body is convened to seek reasons for these actions.
As we’ve reported on FT Alphaville, the breadth and depth of Federal Reserve support smashed expectations, while counterparties to AIG’s wacky derivatives got off too lightly with zero haircuts and legal protection.
That said, it’s more than a bit rich to suggest that AIG was victim of an “arbitrary” approach and to accuse the Fed of being the only ones dawdling through 2008. AIG’s calamitous insouciance while its CDO and other products collapsed around it has been well documented.
Yet fear not, as Hank says it’s not too late to avoid making gains to the taxpayer a near-permanent socialist takeover:
It has been reported previously that the Treasury expected to make a profit of $22 billion on its investment in AIG. Based on the recent rise in the price of AIG’s stock to a year-end value of $57.62 per share, the unrealized profit has increased to approximately $44 billion. Moreover, this unrealized profit is exclusive of the gains the Federal Reserve is already realizing on other loans it made to AIG.
To suggest that those amounts are excessive is an understatement. Clearly the Federal Reserve and Treasury had little knowledge of the real value of AIG. The bridge loan provided to AIG did not require so much equity in AIG in addition to the original 14.5% interest that it charged. It is not too late for Treasury to reduce its equity position to a more reasonable size consistent with what was done for other companies that received temporary assistance. Doing so would position AIG as a majority privately owned corporation and no longer a ward of the U.S. government.
Though we have a modicum of sympathy for those trying to create a new (insurance) company out of the toxic ashes of the old AIG in advance of the government’s equity sell-off, there’s a certain irony to questioning the Treasury’s ostensibly successful investment strategy after gobbling up $180bn of taxpayer cash and insisting on those infamous bonuses.
The administration seems unconcerned, according to this quote picked up by Politico’s Morning Money:
A senior official told M.M.: “The fact that Hank Greenberg is very mad at the government’s handling of AIG should make taxpayers happy. It means that previous equity holders got wiped out – more or less – and the gains were socialized. Those who bought in post-bailout (Fairholme Capital) and backed the Treasury plan to restructure with their cash have done very well. This sentence [from the op-ed] is the most underreported aspect of the deal. ‘It has been reported previously that the Treasury expected to make a profit of $22 billion on its investment in AIG. Based on the recent rise in the price of AIG’s stock to a year-end value of $57.62 per share, the unrealized profit has increased to approximately $44 billion.’”
Hank’s after an independent investigation to sort this all out. G’luck.
Then again, maybe Hank is still bummed about his “worthless” stock:
Related links:
Why nationalize AIG? – Hank Greenberg
The AIG e-mails, or, 250,000 pages of bail-out oddity – FT Alphaville
Revamp of AIG to pave way for US stake sale – FT