American Missive

The prospects of recovery of capital and a return on the equity investment to the taxpayer are highly speculative,”
—U.S. Treasury Department, August 28, 2009.

ATLANTA— Bloomberg.com is reporting that Judicial Watch, a group that advocates government transparency, obtained documents from the U.S. Treasury Department under the Freedom of Information Act that show the Department’s true feelings about the AIG investment.  According to the article, AIG still owes the federal government $40 billion in loans after a flurry of asset sales and other activities intended to repay the American taxpayer.  The government owns approximately 80 percent of the Company.

This may explain why in the recent past, Tim Geithner was not able to answer direct questions regarding the United States’ “exit strategy” for the AIG investment. 

In my view, the cost to the American taxpayer is far greater than the $40 billion AIG still owes us or the equity that we have at risk.  The greater cost comes from the moral hazard that is created by bailing out bad business behavior.

Americans are surprised to see Wall Street going back to the days of heady bonuses and high risk behavior, so soon after the crash.  Why should we be surprised?  After all, thanks to the Bush and Obama Administrations, they are backed by the full faith and credit of the United States government.