Publicity-wise, Bloomberg Businessweek's Thursday report on AIG's financial ill-health and the federal maneuvering to hide it came at a bad time, following a spate of glum financial news and a Frontline documentary that picked at the scabs of 2008's financial collapse. The bottom line in AIG's report is likely to enrage anybody who saw Frontline's episode, or perhaps a remembers Andrew Ross Sorkin's Too Big to Fail: The federal government, which still owns a 70 percent stake in AIG, allowed it and other TARP recipients to "use operating losses from previous years to eliminate taxes on current income." That tax break "added $17.7 billion to AIG’s fourth-quarter earnings and will allow the company to shield profits from taxes for many years to come." AIG's stock is up 40 percent, Businessweek's Roben Farzad noted, because Treasury allowed it to report more profit than it earned thanks to this tax break.
On Wednesday, the Special Inspector General for the Troubled Asset Relief Program, set up to monitor TARP, gave a completely contradictory report to the U.S. Treasury's claim last week that TARP would turn a profit. As Reuters' Felix Salmon, whose blog post on SIGTARP's report gives one of the clearest explanations of it, writes: "SIGTARP, clearly pushing back against Treasury, says: 'It is a widely held misconception that TARP will make a profit. The most recent cost estimate for TARP is a loss of $60 billion.' " There's more less-than-happy financial news this week too, coming from Britain, which finds itself back in a recession, and fears that the United States could follow it there. The last thing anybody wants to hear is that the federal government is accommodating the culprits of our last big financial collapse with big tax breaks and exotic accounting. But there you go.