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For all intents and purposes, the U.S. government is now out of its emergency bailout of AIG.And for the most part, observers are pleased that investment turned a $22.7 billion profit.
But we know that the deal has its critics, that’s why Business Insider contacted former Head of TARP, Neil Barofsky.
Here’s what he had to say about the deal:
The press release’s declaration of Treasury’s sale of common stock as a profit is misleading in that nearly a third of that stock came from the Federal Reserve, not from purchases made by Treasury through the TARP program.
It also does not account for the losses that the taxpayer will suffer through the waiver Treasury gave to AIG so that it could retain tens of billions of dollars of deferred tax assets.
But notwithstanding these accounting irregularities, the news regarding losses is still very good for the taxpayer.
But Treasury’s spiking of the football, of course, detracts from the massive moral hazard created when the government paid out AIG’s counter parties creditors at 100 cents on the dollar, making the government’s backstop of certain financial institutions deemed too big to fail explicit and incentivizing in the future the exact same types of behaviour that led to the last crisis and will almost certainly cause the next.
The story today that the DOJ did not pursue criminal charges against HSBC today is the inevitable other side of that coin. As a government we have incentivized bad behaviour, and then in the name of systemic stability we do not adequately punish it. We’ve seen this movie before, and it does not end well.
In short: Good, but we can do better.
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