AIG accounting

It looks like Treasury will make a profit on its AIG bailout stake. As I emphasized in 2008, markets were clearly not pricing credit-related assets properly during the crisis. Strong EMH supporters take note (see also here).

NYTimes: ... The Treasury Department announced it planned to sell $18 billion of its A.I.G. stake, putting it on a path to actually turn a profit. It was a remarkable feat and one that nobody — including Treasury Secretary Timothy F. Geithner — anticipated four years ago at the peak of the crisis during the $180 billion bailout of the company.

"Nobody"? -- not so fast! Here's what I wrote in 2008:

If -- and it's a big if -- AIG's actual CDS payouts are limited, the government and taxpayers stand to make a lot of money over the next 3-5 years. When markets return to normal the profitable ordinary insurance parts of AIG can be liquidated to pay off the bridge loan. In that scenario the big losers are AIG shareholders -- the government, as the lender of last resort, will have bought a distressed AIG for a song.

More AIG stuff here. Misuse of EMH arguments can hurt your brain.