Recovering taxpayer money on a bailout boosts moral hazard

Marc Sidwell
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THE White House says the AIG shares sale demonstrates its “commitment to recover taxpayer money”. But not, one can’t help noting, to return it to actual taxpayers. And announcing the sale of $18bn of shares at once doesn’t sound like all that much of a commitment to selling at a great price. Still, the American government thinks the figures have recovered enough for it to start turning a profit on its original stake, which is probably more than anyone could have hoped for.

AIG shares have traded up from their 2009 nadir, but its share price still remains far, far lower than it was for much of the 2000s. Then again, the idea that a company with the government as a majority shareholder was ever going to roar to new heights of value was never a promising one. At least this new deal will loosen the leash on AIG somewhat. But a Treasury that suddenly finds itself coming out on top of a bailout deal is a dangerous thing. It might start to think that it’s worth making it a habit.