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AIG Stock Sale Pays Back US Government in Full

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AIG's successful repayment of its federal bailout funds contrasts sharply with the hopeless bailout of Fannie Mae and Freddie Mac.

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Investment Banks 1, GSEs 0

Blaming the investment-banking psychopaths on Wall Street is tempting, but doesn't make sense given the almost-complete repayment of private-sector bailout money compared to the black hole of the GSE bailout. If you need further proof, just look at what's going on in Obama Justice Department and US federal courts. The Justice Department recently announced that it would not prosecute Goldman Sachs (GS) for its role in selling subprime mortgages in the ABACUS affair. Similarly, New York US District Court Judge Paul Crotty recently dismissed fraud charges against Wall Street firms that helped Fannie Mae sell preferred stock but refused to dismiss fraud charges against Fannie Mae's former CEO Daniel Mudd. With regard to Mudd and other Fannie Mae executives, the judge stated:

Given what defendants knew about low-documentation loans, they must have known that FNMA's disclosed subprime and Alt-A exposure calculations were materially misleading. Defendants conduct in making, or aiding others that made, these misstatements constitutes an extreme departure from the standard of ordinary care.

Government's Role in the Economy Should Be Limited to Referee, Not Player

My takeaway: the private sector makes mistakes, but these mistakes are correctable after the fact because private companies are relatively small, are experts at generating wealth, and will be able to provide full compensation to wronged parties. In contrast, when the government meddles in the economy, the mistakes are much larger and destructive and the government doesn't have a clue how to create the wealth needed to right its wrongs.

If the Washington political elite can learn this free-market lesson from contrasting the results of the AIG and Fannie Mae bailouts, then I will be first in line proclaiming the government's AIG bailout to have been well worth its initial cost.

This article by Jim Fink was originally published on Investing Daily.

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Twitter: @investingdaily
No positions in stocks mentioned.
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