- The Big Picture - http://www.ritholtz.com/blog -

SIGTARP Report: Treasury Hid AIG Losses

Posted By Barry Ritholtz On October 26, 2010 @ 6:30 am In Bailouts,Earnings | Comments Disabled

Need to hide $40b in losses from view? You can, in one easy step — just change the accounting methodology, and like magic, yo can make the loss disappear!

“The United States Treasury concealed $40 billion in likely taxpayer losses on the bailout of the American International Group earlier this month, when it abandoned its usual method for valuing investments, according to a report by the special inspector general for the Troubled Asset Relief Program . . .

In early October, the Treasury issued a report predicting that the taxpayers would ultimately lose just $5 billion on their investment in A.I.G., a remarkable outcome, since the insurance company was extended $182 billion in taxpayer money in the early months of its rescue. The prediction of a modest loss, widely reported as A.I.G., the Federal Reserve and the Treasury rushed to complete an exit plan, contrasted with an earlier prediction by the Treasury that the taxpayers would lose $45 billion.”

This is my favorite part of the article:

“[SIGTARP Inspector Neil] Barofsky said he had written to the Treasury secretary, Timothy F. Geithner, in mid-October, after widespread reports in the news media about the possibility that the Treasury could wind down its position in A.I.G. with just a $5 billion loss. He recommended that the Treasury correct the October report, perhaps by adding a footnote saying the methodology for calculating its losses had changed.

The Treasury declined. It sent back a letter saying its methodology for calculating losses had not really changed, although its assumptions had . . . “

They refused to add a footnote — if this was a public firm the SEC would be all over their asses! Adding a footnote disclosing the accounting change was too much for Treasury — outrageous.

Yet more reasons why bailouts are a bad idea: Incentivizing the government to lie . . .

>

Sources:

SIGTARP October 26, 2010 – Quarterly Report to Congress [1] [PDF]

Treasury Hid A.I.G. Loss, Report Says [2]
MARY WILLIAMS WALSH
NYT, October 26, 2010
http://www.nytimes.com/2010/10/26/business/26tarp.html


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2010/10/sigtarp-report-treasury-hid-aig-losses/

URLs in this post:

[1] Quarterly Report to Congress: http://www.sigtarp.gov/reports/congress/2010/October2010_Quarterly_Report_to_Congress.pdf

[2] Treasury Hid A.I.G. Loss, Report Says: http://www.nytimes.com/2010/10/26/business/26tarp.html

Copyright © 2008 The Big Picture. All rights reserved.