“We think that the American taxpayer will be fully repaid” under the company’s plan”—Ed Liddy, AIG CEO, May 13, 2009

“At the end of the day, we believe we will be able to pay back the government and we hope we will be able to do something for our shareholders as well.”– CEO Robert Benmosche, August 20, 2009

“Moreover, Federal Reserve and Treasury staff routinely monitor AIG’s operations and receive reports on AIG’s condition and restructuring. While these efforts are being made, the government remains exposed to risks, including credit risk and investment risk, which could result in the Federal Reserve and Treasury not being repaid in full.”– Government Accountability Office, September 21, 2009

AIG has had two CEOs since the government began the rescue of the huge firm which involved the Treasury and Federal Reserve putting $182 billion into the company. Both of these men have said that AIG will pay back all the money it has received. Taxpayers own 80% of the company. The GAO believes that there is still enough risk on the AIG balance sheet that some part of the government’s capital may be lost.

Taxpayers have done well in the financial company bailout business so they should probably not be too greedy about their AIG investment. The returns on the TARP funds loaned to Goldman Sachs, (GS), Morgan Stanley (MS), American Express (AXP), and a handful of other banks have been excellent. These firms not only paid back the TARP but the government got billions of dollars for warrants it took when it made the loans. The profit on Goldman, Morgan, and Amex combined was nearly $2.1 billion.

Journalist Allan Sloan reported that there are still 628 institutions that owe $174 billion in TARP funds. Some of those may never pay the government back. Among the largest on the list are Bank of America (BAC) and Citigroup (C). Each hints that it will make payments from time to time, but it is not clear that they have the money. The government may not want the capital now. These banks may be weak enough to need rainy day funds in the event that the credit and financial crisis is not over. It is likely that senior Fed officials assume that there are still billions of dollars in write-offs on big bank balance sheets. It’s better to be safe than sorry.

No one in the Administration or at the Fed wants to admit that if the taxpayers lose tens of billions of dollars on major financial firm bailouts that it was still a good deal. The argument would be that if AIG or Citigroup failed that the entire credit system would have collapsed. No one has given an entirely lucid analysis of what that would have meant, but it is fairly certain that businesses and consumers would have lost access to credit almost completely and that the government would have been forced to take over the entire banking system, private sector and all.

The AIG management comments about getting cash back to taxpayers and the government’s willingness not to aggressively challenge the comments are part of the normal “business as usual” that bogs down the process of telling the entire truth among the people who run corporations and the politicians who are involved in the process.

The best face is the only face as long as it is not an outright lie. But, sometimes the best face does get shifted across the ethical bright line to lying. The press is usually good at investigating these issues, especially on the larger matters that pertain to public company and government statements. This detective work is necessary. No one at AIG or at any government agency involved with its bailout is going to say “We are sorry, but we don’t think taxpayers will ever get their money back. Even so, your contribution saved the financial system from unimaginable harm.” Gallup has not polled people about whether they believe that their investment in AIG has been a good one. No one has systematically asked if taxpayers would rather have had their money stay in the Treasury and lived with the risk that Wall St. could have become totally dysfunctional. Citizens were told that things would work out for the best and that their money would not be lost. That really has not turned out to be the truth, but the bad news is never true until it is.

Douglas A. McIntyre

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