The Ugly Underbelly Of The AIG Debacle

A report by Neil Barofsky, Inspector General for Troubled Asset Relief Program, sheds new light on the circumstances surrounding the AIG bailout. However, it leaves out some critical points and in general glosses over them.

The report does not offer any convincing reason for the Government paying 100 cents per dollar to the AIG’s subprime insurance counterparties. It fails to answer why the Government failed to convince the counterparties to accept Government IOUs and to drop their claims.

However, focusing on the payouts will only prove to be a myopic approach. Real concern lies in the failure to create a financial system where the tax payers are not required to bail out the investors from their reckless puntering. Mr. Barofsky has also chastised the credit rating agencies for not fulfilling their role of being the gatekeepers. Again, the Government is to be blamed for their over-reliance on the credit rating agencies which inherently have a conflicting business model.