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AIG bailout “profits” assure moral hazard will continue

Last month the Federal Reserve Bank of New York sold Maiden Lane III, a portfolio of AIG’s assets for a profit of $17.7 billion, an almost shocking figure considering many thought the N.Y. Fed would take sweeping losses on the assets estimated at $62 billion at face value.

Though some analysts have suggested the government could have made better returns on its bailouts because it didn’t charge appropriate rates, the windfall of tens of billions of dollars has its own strings attached.

Some believe the profits only ensure that the principle of moral hazard is in place. That is, the government knows it can profit from the rescue of too-big-to-fail financial institutions and those firms will take risks knowing that the government is willing to halt their fall when bets go awry.

via AIG bailout profits came with a price – MarketWatch First Take – MarketWatch.

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