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Sorkin’s AIG Tale Debunked by . . . Sorkin

Posted By Barry Ritholtz On September 13, 2012 @ 6:30 am In Bailouts,Financial Press,Really, really bad calls | Comments Disabled

A quick WTF about the recent hatchet job on SIG TARP cop and Bailout! [1] author Neil Barofsky by the NYT columnist Andrew Ross Sorkin.

In an article earlier this week, the Dealbook founder and current CNBC anchor parrots the Treasury Department’s position to make the claim that the A.I.G. Bailout Actually Worked [2]. Sorkin’s experience channeling  Treasury Secretary Geithner in TBTF must have come in handy when he repeated Geithner’s claim that the AIG bailout was actually profitable for the government, and what is the deal with this gloomy Gus named Barofosky? Some people just don’t like movies with happy endings.

Why would anyone be unhappy with the AIG bailout, Sorkin mused. We avoided Armageddon, and made a profit to boot!

Except we didn’t. That claim was shown to be absurd by one . . .  wait for it . . . Andrew Ross Sorkin, columnist for the NYT and CNBC anchor. Wait, its the same guy? How did Sorkin vs Sorkin manage to resolve itself vis-a-vis AIG?

On February 27, 2012, Sorkin reported that AIG had received $182 billion in bailouts (“A.I.G. Earnings an Illusion of a Bend in U.S. Tax Laws [3]“). AIG was given a special tax dispensation (which in my opinion, was of dubious legality). Net operating losses, which should have been lost in the bailout (or bankruptcy) of the company were “gifted” to AIG from Treasury, without Congressional approval:

“However, according to longstanding tax laws, if a company files for bankruptcy or is taken over, it loses the ability to use its net operating losses. A.I.G. would fit that profile perfectly: on the verge of bankruptcy, the federal government took control of A.I.G., exchanging its bailout billions for shares in the company.

Sorkin estimated the value of this tax gift at about $25 billion dollars. As he explained, AIG was able to offset taxes owed with these phantom losses. If the earnings the company reported were an illusion, how could the profits the Treasury reported not also be an illusion?

This was nothing less than $25 billion dollars in tax receipts lost to American taxpayer — the people who bailed out AIG in the first place. This accounting sleight of hand amounted to a transfer of obligations, removing a liability from the balance sheet of AIG to the detriment of taxpayers. As Sorkin wrote, last year alone AIG “claimed almost $9 billion in other unrealized loss on investments.” Accounting Net Operating Losses that should never had existed after the bailout/takeover of AIG. Losses that managed to magically reduce their tax burden to the people who rescued them.

So to sum up, AIG made money for the taxpayer, except for the $25 billion that the taxpayer forfeited due to actions of Treasury which may or may not have been unauthorized by Congress, and in any event amounted to an enormous subsidy to AIG beyond the original bailouts.

Here’s a $25 billion tax break — please use it to pay us back our money so we can claim to be breakeven.

What utter nonsense.

It is impossible to avoid the conclusion that when it comes to AIG, Sorkin has been thoroughly debunked . . . by Sorkin.

~~~

To keep up with all the bailout data, I have found Pro Publica’s Bailout Tracker [4] to be enormously useful. Those of you who are tax or accounting minded — or just curious –  can get into the weeds on this by checking out what Interfluidity [5] or naked capitalism [6] has to say on the matter.

Barofsky is the keynote speaker at TBP conference [7], so while I may be biased, the math is not.


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

URL to article: http://www.ritholtz.com/blog/2012/09/sorkins-aig-tale-debunked-by-sorkin/

URLs in this post:

[1] Bailout!: http://www.amazon.com/exec/obidos/ASIN/1451684932/thebigpictu09-20

[2] the A.I.G. Bailout Actually Worked: http://dealbook.nytimes.com/2012/09/10/plot-twist-in-the-a-i-g-bailout-it-actually-worked/

[3] A.I.G. Earnings an Illusion of a Bend in U.S. Tax Laws: http://dealbook.nytimes.com/2012/02/27/bending-the-tax-code-and-lifting-a-i-g-s-profit/

[4] Bailout Tracker: http://projects.propublica.org/bailout/main/summary

[5] Interfluidity: http://www.interfluidity.com/v2/2587.html

[6] naked capitalism: http://www.nakedcapitalism.com/2012/09/andrew-ross-sorkins-bad-math-on-aig.html

[7] TBP conference: http://thebigpictureconference.eventbrite.com/

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