Will AIG Continue to be a Sore Spot?

AIG continues to require taxpayer funding. After a large bailout is this really fare? rnWho would have thought that AIG would still require taxpayer funding despite the massive bailout they received? The report issued for July by the government office responsible for the oversight of the $700 billion TARP bailout fund, shows that the insurance giant could continue to be a burden to the taxpayer for quite some time.rnAccording to this quarter’s SIGTARP report, the government has not made money from bailing out AIG. In fact, they are actually out $30 billion. The Treasury has more than a billion of the insurance company’s shares in its possession, with a worth of about $33 billion. That is $3 billion dollars ahead, on paper. rnBut, if the government were to decide to jump ship, and get rid of its AIG shares, which accounts for sixty-one percent of the company, the stock would undoubtedly fall. rnOn the other hand, the SIGTARP report shows that should the unlikely take place—meaning should the bailout succeed by generating revenue—the process of having to keep the company up and running would be expensive. Regulating the massive company will not be an easy task, either.rnIt isn’t as though the government didn’t expect this to happen. The cost has always been there. They simply did not pay it any mind. What is more is that the office in charge of regulating AIG, the Office of Thrift Supervision, has ceased to exist for some time. AIG is still operating without having been assigned to another regulator. For now, with the government owning a large portion of the company and with everyone’s mind on risk, this might be acceptable. But at some time or other AIG will have to be supervised by the government, and that next step is sure to cost a pretty penny.rnAt the present, the general belief is that AIG’s regulation will be taken over by the Federal Reserve, but many wonder if that is the best solution. Since spending $150 billion of our tax dollars to “save” the company, the government has not made any changes in how it operates. Sure, AIG has reduced its holdings of derivatives contracts, but they are still acquiring all kinds of hard to quantify risks all over the world. The insurance company is still operating in the same way, as it was when the government bailed it out four years ago. They are still functioning under the same auditor, too, if you can believe that.rnTreasury officials say that the government is doing a better job of running AIG than SIGTARP claims. They say that the Federal Reserve has made $13 billion in fees and interest from the bailout that SIGTARP failed to include in the report. Treasury spokesperson Matt Anderson said “AIG has taken significant action since the crisis-working with Treasury and the Federal Reserve-to restructure, reduce risk, and streamline its operations to focus on its core insurance business.”rnThe wisest choice, which the SIGTARP report was hesitant to point out explicitly, might be to just break-up AIG. Perhaps, if one were to make that argument, the bailout should not have been made at all. In any case, it does not appear that the government will be able to shoulder its investment in the insurance company onto someone else anytime soon, giving them an ample amount of time to consider this plausible alternative.