TARP Inspector Notes AIG's Failure to Meet Required Payments

The special inspector general assigned to monitor the massive Troubled Asset Relief Program, Neil M. Barofsky, said that portions of the money have returned to federal accounts but that it's unlikely the rescue will pay for itself in the long run.

Barofsky issued a report that gave an update on the performance of American International Group Inc., which was characterized as being in the midst of recovery -- though an uncertain one. AIG showed a quarterly profit in the second quarter of 2009, which the report took as a positive sign. However, it was also noted that AIG had missed three required dividend payments. "If AIG misses its fourth dividend payment on Nov. 1, Treasury will have the right to elect directors to the AIG board."

The "dramatic steps" taken by TARP "played a significant role in bringing the system back from the brink of collapse," the report said. But the costs -- both in actual dollars and also in "the impact on government credibility due to the failure to explain what is being done with billions of taxpayer dollars transparently and forthrightly" -- could prove "substantial," it said.

The program was given authority to spend up to $699 billion and has approved the use of $636.9 billion of that for the purchase of troubled assets. Of that, $454.3 billion has so far been spent on an array of rescues of financial institutions, automobile makers and homeowners. Currently, 47 TARP recipients have paid back $72.9 billion. Another $12.4 billion has been recovered by the federal government through dividend payments, interest and stock sales. The report concluded: "The ultimate cost of TARP to U.S. taxpayers will not be known for some time, and in fact a true net cost may never be known with precision."

Of those who participated in TARP's Capital Purchase Program, 46 companies have missed dividend payments.

Some of the money that has already been paid back by TARP recipients has been returned at a 17% profit for the government, but the report said, "It is extremely unlikely that the taxpayers will see a full return on their TARP investments." That's largely because other aspects of the program weren't geared toward achieving a return. As for the "extraordinary assistance" given to AIG, it said, "full recovery is far from certain."

Insurance giant AIG received significant attention in Barofsky's report. "AIG, [the Federal Reserve Bank of New York], and [the U.S. Department of the Treasury] have continued to work together to improve AIG's overall health and viability through the use of the government's assistance package and AIG's continued efforts at restructuring through asset dispositions and sales," it said.

Attempts to reach AIG for comment were not immediately successful.

Most AIG insurance companies have current Best's Financial Strength Rating of A (Excellent).