US Treasury shows Brussels how it’s done

The US Treasury has confirmed its rescue operation for AIG has been completed. AIG, readers will remember, was a financial asset insurance whale, a risk-fear combatant that, like most of these institutions around the developed world, was an unmeasurable bluff because it could not possibly honour its commitments with the scarce capital it retained. The size of AIG was sufficient as to be known as the world’s insurer, and its demise in 2008 would have triggered our collapse–we being all of us, literally. AIG’s default would have left the world’s financial system broke.

After having sealed AIG’s bailout, the American Treasury has also announced there it now is a positive balance of $22 billion for, well, the taxpayer. That is to say that it has had zero cost.

James Hamilton, one of the fuzziest but non-partisan economists, scrutinises here the information released by the US government and concludes that it is true: AIG has been salvaged and taxpayers protected.

In any case, the goal was to rescue the system as a whole, not only the American part of it. The decision made in October 2008 was a big one. Thanks to Treasury secretary Paulson, New York Federal Reserve chairman Geithner and Federal Reserve chairman Bernanke, a terrible implosion was avoided. Otherwise, we all would be in a much deeper abyss.

TARP, the Troubled Asset Relief Program programme of the US government to purchase assets and equity from troubled financial institutions–something similar to the bad bank Spain is somehow partially and slowly trying to set up–, brought no losses, either.

Europe, very regrettably, has learnt nothing from the American example.

About the Author

Miguel Navascués
Miguel Navascués has worked as an economist at the Bank of Spain for 30 years, and focuses on international and monetary economics. He blogs in Spanish at: http://

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