The U.S. Treasury reduced its stake in AIG or American International Group even further and stated on Tuesday that the United States could now be expected to earn a $15.1 billion U.S. Treasury profit just from bailing out the troubled insurer. The Treasury disclosed the fact as a rebuff to people who had previously opposed the bailout of the finance industry which took place between the years of 2008-09.
Present State of AIG
The $18 billion stock sale of AIG, following the AIG bailout, by the U.S. Treasury Department is likely to find new buyers in the underwriters who may be able to buy more of the shares of the company to the tune of $2.7 billion, significantly improving the returns on the investment of the U.S. government.
Everything taken together, the sales have managed to lessen the majority shareholding of the Treasury in AIG from around 53.4 percent to just 15.9 percent. 234.2 million AIG shares are expected to remain with the treasury when the offering comes to a close in spite of the $15.1 billion U.S. Treasury profit.
There was a time when the government held a large stake in the company of nearly 80 percent and vowed to offer as much as $182.3 billion in order to backstop the insurer at the time when losses in mortgage put considerable pressure on it to come up with a significant amount of cash within a short span of time.
The U.S. Treasury has started to wind down a number of its bailout programs, unlike the AIG bailout, prior to the presidential elections to be held in the month of November were the current President Barack Obama has been steadfastly defending the decision of his administration to bail out a specific set of corporations. The department on Tuesday claimed that the future sales of the remaining AIG common stock properties of the Treasury will offer an extra return to taxpayers, considering the $15.1 billion U.S. Treasury profit.
Transfer of Resources
AIG happened to be one of the largest insurance companies found anywhere within the world. But the company has now been reduced to receive the largest portion of bailout money from the TARP or Troubled Asset Relief Program maintained by the government in order to tide over a meltdown in the economic system.
The bailout comprises of both loans and equity from the Federal Reserve and the U.S. Treasury targeted at improving the position of AIG which nearly collapsed as soon as it had sold hundreds of billions of dollars worth of under-collateralized credit default exchanges to investment corporations and banks. There was a constant feeling of anxiety that the collapse of AIG would lead to the downfall of the buyers of the swaps too, triggering off a chain reaction all over the financial system of the globe, unless the AIG bailout was successful.
The rescue, however, was not without its share of controversy with many critics believing that the resources being poured into AIG only contributed towards paying off the counterparties of AIG, instead of having them secure losses on their investments related to AIG bailouts. Some critics maintain that allowing the company to face bankruptcy would have been much better for the U.S. financial system, minus the $15.1 billion U.S. Treasury profit, and even fair to the taxpayers.