WASHINGTON — The federal bailout of the giant insurer American International Group (AIG) was among the largest components of the Troubled Asset Relief Program (TARP) initiated by the government to protect “too big to fail” companies with complex globally relevant sociopolitical ties.
The downfall of AIG began during the mortgage crisis of 2008. The insurer was heavily invested in leveraged mortgage-backed securities, most of which defaulted because of the implosion of the housing market. In September 2008, its credit rating was downgraded below the top tier level of AAA, almost unheard of for a company which was once “the 18th-largest public company in the world,” according to Forbes magazine. Even after other recipients of TARP bailout funds have paid back the government, dialing down assets and selling subsidiaries, the insurance giant still searches for buyers of its assets and has yet to fully pay back the government (meaning the taxpayer).
At the height of the financial scandal, the government owned 79.9 percent of AIG, and was removed from the Dow Jones Industrial Average. This was after the Federal Reserve bailout in which the Federal Bank of New York created a temporary two year loan fund from which the company was authorized to draw over $85 billion dollars.
The insurance giant was also the middle of the aftermath, in which it was revealed that they had paid off many other financial institutions who had also already received funds from the TARP bailout. The document “Schedule A – List of Derivative Transactions” detailed many of the deals that had been done with other major banks, including Goldman Sachs, Deutsche Bank, and Merrill Lynch. Though money was legitimately owed to each institution by the other, many voters and Congressmen expressed outrage that the financial institutions were paying each other before fulfilling their obligations to the taxpayer. They exascerbated the situation by throwing a California retreat for their employees and featuring spa treatments, banquets, and golf, costing almost $450,000.