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AIG stock sale raises $8.7 billion

Marketplace Staff May 25, 2011

AIG stock sale raises $8.7 billion

Marketplace Staff May 25, 2011

JEREMY HOBSON: One of the biggest bailout recipient during the financial crisis was AIG. The company got into trouble insuring banks against losses on mortgage investments. And then when all those investments went bad at the same time, AIG needed a $180 billion government bailout.

Well yesterday, the Treasury Department sold off 200 million shares, cutting its stake in the company from 92 percent to 77 percent.

Timothy Massad is the Treasury Department’s Acting Assistant Secretary for Financial Stability. He’s with us now from New York. Good morning.

TIMOTHY MASSAD: Good morning.

HOBSON: Well, how much did the government make on the sale of AIG?

MASSAD: We will get about $5.8 billion in proceeds. So this was a terrific step in recovering our investment in AIG.

HOBSON: But a lot of people say if you had sold shares earlier, you would’ve made more money.

MASSAD: Well, you know it takes some time to get ready to do an offering like this. We have a lot of shares to sell, but we’ll do it in an orderly manner so that we maximize value to the taxpayer.

HOBSON: You say it wasn’t the government’s aim though to make a profit off of AIG. Why not?

MASSAD: The government isn’t a hedge fund. We’re not trying to make investments to make a profit. But the fact is that we are hopeful that we can recover almost all the money invested under the TARP program, and that’s great news for the American taxpayer. The most important thing of course is that the actions taken prevented us from slipping into what could’ve been another Great Depression.

HOBSON: A lot of people looking back at the TARP say that the most dangerous thing about it was not that we might loose some money on it, but rather the precedent that it set for firms that take too much risk and think they’re going to be bailed out by the government. What do you think of that?

MASSAD: Any time the government provides assistance to a private company there is moral hazard. And it’s unfortunate that we didn’t have the tools we needed to liquidate companies without having to do this. So I agree with that. The good news is that Congress has passed the Dodd-Frank legislation which gives us a variety of new tools to liquidate companies who’s failure would otherwise threaten the system and it puts us in a position to avoid having to do this sort of thing again.

HOBSON: You think that Dodd-Frank solves the moral hazard problem?

MASSAD: Well, I think it gives us the tools to solve it, yes. But we have to implement those and we have to use them aggressively and wisely.

HOBSON: Timothy Massad, Acting Assistant Secretary for Financial Stability at the Treasury Department. Thanks so much for joining us.

MASSAD: Thank you.

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