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Monday
Feb142011

Where Are the AIG Dividends? The Federal Reserve Is Getting Paid Back, Why Not Taxpayers?

Bush, Hank Paulson, Bernanke

Editor's Note:  A republish from last Fall for readers who missed it the first time around.  It's now been two years and taxpayers are still waiting for dividends on our remaining $49 billion invested in AIG.  Meanwhile, the Federal Reserve is having NO TROUBLE collecting on its loan.  In fact, as you will read, the bailout was STRUCTURED that way from the beginning - All to assure the Fed was paid back FIRST.

 

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Reprinted with permission.

If there is one bailout where the U.S. Treasury should be uncompromising in protecting taxpayer interests, it is the rescue of American International Group.

Yet, nearly two years after its near-collapse, AIG has yet to pay any cash dividends to the Treasury on the $49 billion of public money it still has invested in the company.

That fact is a jarring reminder of the big compromises the government made in shoring up AIG—and the potential conflicts the Treasury still has to navigate as it tries to exit the company.

AIG is making payments on the government support provided by the Federal ReserveIn fact, the bailout was deliberately structured so the Fed effectively gets paid ahead of the Treasury.  Even so, few would have expected that, for this long, AIG would be paying employees, creditors and policyholders, but not compensating taxpayers on nearly $50 billion of their money.

One of the reasons is that the government believed AIG would struggle to find the cash to pay the 10% dividend rate on its preferred shares. That is why, in April 2009, the Treasury swapped $40 billion of AIG preferred shares for new, more lenient preferreds. Unlike the first set, which left the company on the hook for any unpaid dividends into the future, the new preferreds don't.

In foregoing cash payments on the preferreds, the Treasury has effectively placed its hopes on getting paid back later through funds raised via a common-stock offering. In theory, once the Fed has been repaid and AIG restructured, private investors should be more willing to buy the company's shares.

The government could convert its preferreds into common stock that it could then sell in the market, a strategy it has taken with Citigroup. But there is one difference: Citi made its payments of over $2 billion in cash dividends on Treasury preferreds before they were either repaid or swapped into common shares and other securities.

Making matters worse, the Treasury now faces a freeloader problem. Forgoing cash dividends on preferreds supports the value of AIG's common stock, and is effectively a giveaway to outside holders of those shares.

True, the Treasury also effectively owns nearly 80% of AIG's common shares, a stake it acquired during the bailout. But the remaining 20%, owned by private shareholders whose interests were never supposed to be protected by the bailout, are benefiting from the Treasury's lenience.

One way to avoid this might be for the government to decide that AIG should start paying the dividends on the $49 billion of preferreds, or at least a portion of them. True, the Treasury's existing holding of common stock might lose some of its value. But it would be getting hard cash today—and showing private common holders that there are risks to freeloading off the government.

Two years on, the taxpayer deserves nothing less.

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Reader Comments (12)

You might not have seen it reported, but the Senate will vote this morning on whether to repeal part of ObamaCare that it passed only months ago. The White House is opposed, but this fight is likely to be the first of many as Americans discover—as Nancy Pelosi once famously predicted—what's in the bill.

The Senate will vote on amendments to the White House small business bill that would rescind an ObamaCare mandate that companies track and submit to the IRS all business-to-business transactions over $600 annually. Democrats tucked the 1099 reporting footnote into the bill to raise an estimated $17.1 billion, part of the effort to claim that ObamaCare reduces the deficit by $100 billion or so.

http://online.wsj.com/article/SB10001424052748703897204575488272691514074.html?mod=WSJ_newsreel_opinion
Sep 14, 2010 at 1:53 AM | Registered CommenterDailyBail
As Big Labor has realized it won't get "card check" legislation through Congress, it is turning to its secret weapon inside the Obama Administration—labor lawyer Craig Becker. And as many Senators feared when he was nominated, Mr. Becker is using his position on the National Labor Relations Board to bypass the will of Congress.

http://online.wsj.com/article/SB10001424052748703597204575483882585485368.html?mod=WSJ_newsreel_opinion
Sep 14, 2010 at 1:54 AM | Registered CommenterDailyBail
Boehner's Tax Bungle

The House GOP leader steps into Obama's trap.

http://online.wsj.com/article/SB10001424052748703466704575489834263214218.html?mod=WSJ_newsreel_opinion

For some of these WSJ stories...just paste the headline into google and click through from there...you will be able to read the entire article...
Sep 14, 2010 at 1:54 AM | Registered CommenterDailyBail
Obama Embraces the 'Pre-emption' Doctrine

Will federal law trump state law when it upsets the trial lawyers?

http://online.wsj.com/article/SB10001424052748703466704575489571017923434.html?mod=WSJ_newsreel_opinion
Sep 14, 2010 at 1:56 AM | Registered CommenterDailyBail
What percentage of the population a) understands this stuff b) is aware of any of it and c) gives a flying hoot? I couldn't begin to guess the answer, but I'm pretty sure you're going to need at least one, maybe two, decimal places. That was the only real problem with TARP -- people understood it was a big, freakin' bailout and they got the bill.

You're doing your level best on this, DB. We salute your efforts. Who knows, maybe some Tea Party candidate somewhere is studying up like a champ, reading The Bail, and preparing to breathe fire and destruction on his reality-challenged opponents.
Sep 14, 2010 at 12:07 PM | Registered CommenterDr. Pitchfork
thanks pitch...
Sep 14, 2010 at 12:55 PM | Registered CommenterDailyBail
A.I.G. Lists Banks It Paid With U.S. Bailout Funds

http://www.nytimes.com/2009/03/16/business/16rescue.html?_r=2&hp

counterparty payment list...
Feb 14, 2011 at 11:50 AM | Registered CommenterDailyBail
The credit ratings agency Moody's yesterday cut its rating of four Irish banks to junk status, citing its concerns over the imminence of new funding which was due at the end of February.

http://www.irishcentral.com/news/Moodys-rates-Irish-banks-as-junk-116109494.html
Feb 14, 2011 at 11:51 AM | Registered CommenterDailyBail
Since the Fed drew up the plan, does anyone really think they give a rat's ass about the taxpayer?
Feb 14, 2011 at 4:50 PM | Unregistered Commenterrobertsgt40
They Neaver planed to pay it back to us. Once they had our money, it was no longer ours. If it's "No Longer Ours" why in hell would they think they should pay it back.

How many people out thAre realy give a "Flying-Fu*k", about any of this shit, well maby only the ones on the "Daily Bail" do...........
Feb 14, 2011 at 5:13 PM | Unregistered CommenterTexas Dar
The taxpayer merely exists to be exploited.
Feb 14, 2011 at 7:19 PM | Unregistered CommenterS. Gompers

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