Five years after American International Group's emergencytakeover by the Federal Reserve Board, a National Economic Councilreport touts the bailout's successes, while the New York Departmentof Financial Services reopens an investigation into the insurer'srisk-management practices leading up to the federalactions. 

In the DFS probe, disclosed in a June letter by Superintendent BenjaminLawsky, examiners are alleging that AIG may havefailed to properly measure and manage risk, misled supervisors andinvestors, and lacked appropriate checks to limit outsizedrisk-taking. 

The probe is "off-script." That is, federal legislators andstate-regulatory authorities have consistently alleged that theAIGFP was overseen by the now-defunct Office of Thrift Supervision.However, states always had full authority to regulate AIGFP; OTSmerely regulated AIG's small thrift, based in Wilmington, Del. andWilton, Conn. 

In fact, as attorney general of New York, Eliot Spitzer citedthe mispricing of credit-default swaps (CDS) as part of his probeof AIG in 2006. That led to AIG paying a major fine to the SEC andshareholders in 2008. 

Meanwhile, the Obama administration observes the fifthanniversary of the financial crisis. President Barack Obama made anationwide address on the issue Monday, noting that Sept. 15 wasthe fifth anniversary of the Lehman Brotherscollapse. 

While the focus was on Lehman, the government's involvement inAIG's resurrection was more intense. 

It was the evening of Sept. 16, 2008 that Federal ReserveGeneral Counsel Scott Alvarez announced that AIG's board had agreedto sell 79.9 percent of the company to the Fed in exchange for $85billion in cash. 

A National Economic Council report cataloguing Obamaadministration and Federal Reserve actions notes, "Rather than losetens of billions of dollars, the government turned a $22.7 billionreturn on its investments in AIG. Despite widespread predictionsthat the American taxpayers stood to lose billions on their $182.3billion of assistance to AIG, the administration successfullyrecouped $205 billion, for a total positive return to the taxpayersof $22.7 billion, and AIG's loan to the Federal Reserve was fullyrepaid." 

There has been fallout from AIG's near collapse and subsequentrescue. AIG has already been designated by the Financial StabilityOversight Council as a systemically important financialinstitution, which will subject the insurer to oversight by the Fedas well as state regulators. This will bring much higher capitalrequirements and additional oversight on everything from consumerprotection to market conduct, according to industry officials.

AIG is the first insurer to be overseen by the Fed. Insurancehas been strictly under state oversight since the founding of theRepublic. 

In recent comments, Robert Benmosche, president and CEO of AIG,explained that, at the end of 2014, or thereabouts, "AIG will beunder that same capital review as the banks are. 

"And that's not only what our capital ratio numbers are, butit's the quality of the systems that produce the numbers. So it's avery different game we're going play in 2014 and beyond once we'rea part of the Comprehensive Capital Analysis and Review (CCAR)test, so then the Federal Reserve will have a lot to say about whatwe ultimately do and their satisfaction with what the numbers are.So being under CCAR and being a SIFI will be a different level ofregulation than what we are [under] today." 

If the New York DFS now finds AIG's risk-management activitiesinsufficient, that may subject the company to heightened statesupervision as well. Analysts fear that may curb investing andlimit earnings if DFS decides to rein in certain business lines oractivities. 

Ron Klug, a spokesman for the DFS, declinedcomment. 

Jon Diat, a spokesman for AIG, noted that the company had saidin 2011 that it had completed its active wind-down of the FinancialProducts unit's legacy positions. 

"AIG completed the active wind down of the AIGFP portfolios longago and has eliminated 93 percent of the unit's legacy positionsfrom approximately $1.8 trillion in net notional exposure atDecember 31, 2008 to $122 billion in net notional exposure at March31, 2013," Diat said in providing the AIG statement. 

He said the remaining legacy positions "are largely low risk andare being wound down thoughtfully, according to rigorous riskmanagement processes and controls, and in the best interests of allstakeholders, including shareholders. 

"We are highly committed to sound risk management practices andworking closely with our regulators, including the Federal Reserve,to ensure all of our business practices meet and exceed theexpectations of our stakeholders," the statementsaid. 

AIG needed the Fed bailout in September 2008 because margincalls on credit default swaps AIGFP had issued to insure what waslater disclosed to be $2.77 trillion in mortgage-related securitieswere being made by the counterparties. 

The CDS had been purchased by banks throughout the world as wellas other institutional investors. 

The Fed was later forced to increase its aid to AIG. Thisincluded providing cash by taking on speculative securities,collateralized by the reserves of AIG's 13 life insurancesubsidiaries, as well as troubled securities backed by mortgagesAIG had taken back in exchange for the cancellation of outstandingCDS. These securities were contained in facilities called MaidenLane II and III that were established and managed by the Fed. Thesecurities have since been sold, with a profit on the twoinvestments. 

The Fed later turned over its investment outside the Maiden Lanefacilities to the Treasury Department in return for cash, and theTreasury sold off its interest in AIG through a series of initialpublic offerings that ended in 2012. 

AIG has been intensely criticized for the activities of AIGFP.Critics argue that the subsidiary took on huge risks thatultimately brought the company to the brink of insolvency eventhough the unit generated only six percent of AIG's totalrevenues.