February 3, 2013
The government wiped out AIG shareholders while using AIG to bail out other companies whose shareholders were not wiped out. Why?
AIG’s owners perhaps deserved their fate due to AIG’s reckless reliance on rating agencies and bond insurers. But other companies (including many foreign banks) were excused from suffering for their own reckless reliance on AIG. Why?
All the more so because government’s profit on the bailout ($22.7 billion) so clearly accrued because taxpayers acquired AIG’s assets at fire-sale prices even while sparing other companies similar embarrassment. . . .
If the nuances here sound familiar, they should. In the Chrysler and General Motors bankruptcies, government played the role of “debtor-in-possession” financier, then behaved as no DIP financier would, using its leverage to do favors for an important Democratic constituency group, the United Auto Workers, at the expense of debt holders.
The regulator of Fannie Mae and Freddie Mac trumpeted them as solvent and well-capitalized amid the crisis, then gave their boards immunity from shareholder lawsuit in the government takeover that followed a short time later, wiping out their shareholders.
Not directly related to the financial crisis but coming in the same moment of untrammeled government discretion was the BP oil spill. The White House dictated a $20 billion compensation program, funded by BP shareholders, without benefit of any legal process at all.
Some call this “gangster government.”