Will AIG Ever Repay Uncle Sam?

In NU's most recent online poll, 78 percent of those responding do not believe AIG will ever repay all the bailout billions the federal government and taxpayers laid out to rescue the troubled company. I fear our readers are probably right, and frankly Uncle Sam has no one to blame but himself for getting taxpayers into this black hole.

The problem is that the U.S. government has been running around like a chicken with its head cut off ever since the subprime mortgage crisis sent our economy off a cliff. We're been operating in panic mode for months now, and we are still making it up as we go along.

When AIG first came up against its life-threatening moment last fall, I was supportive of the Bush administration's effort to keep the organization afloat with emergency funds, which gave taxpayers a nearly 80 percent stake in the company.

My big concern, however–which has been realized, unfortunately–is that once we were in for a penny, we'd have to be in forbillions more. We couldn't very well allow our “investment” to go bust now, could we? How would the politicians responsible ever face the taxpayers if AIG was allowed to go bankrupt, thereby wiping out taxpayer equity?

The success of the government's plan was predicated on the fact that our rescue funding would buy AIG enough time to sell off its assets in an orderly manner, eventually repaying the Treasury and perhaps even providing taxpayers with a profit!

But, of course, AIG was given marching orders to peddle its various subsidiaries during the worst credit crunch in decades, in the middle of the deepest economic downturn since The Great Depression, and while potential buyers knew AIG was under pressure to move quickly, thereby producing expectations of fire sale prices.

There are no do-overs possible, so the question becomes, where do we go from here? Can AIG survive the hits to its reputation, even as it scrambles to re-brand? Will taxpayers and politicians be patient and give AIG enough breathing room to maintain viable operations that will fetch a good price when sales can be executed?

The early evidence is not good, what with taxpayers and their elected officials fulminating over bonuses designed to keep the people on board who can maintain the company's value.

Ultimately, AIG will emerge from this process and taxpayers will liquidate their holdings, although I suspect it will be for much less than what Uncle Sam has invested on our behalf.

Will the Obama administration take the fall for this debacle? They were handed a very ugly situation when they took office, but going forward, people will judge the president's economic team at least partially on how well they are able to extricate taxpayers from the trillions being spent to prop up what Times columnist Paul Krugman calls “zombie banks” and AIG, the poster child for the bailout generation.

So far, the outlook for a successful resolution is not good.

What do you folks think?