Institutions bailed out by taxpayers must be more accountable

December 13, 2012 9:01 AM

Four years after the taxpayer funded bailout of insurance giant AIG, the US Treasury Department has sold off its last shares in the company. Over the last few years, the sale of shares has resulted in a nominal profit of $22 billion. The US government pumped more than $180 billion into the beleaguered firm in 2008 as the financial world was brought to its knees.

Just a few weeks later, RBS and Lloyds received bailout money to the tune of £37 billion, but returns similar to those from the AIG rescue are a distant dream to British taxpayers who are seemingly on the hook indefinitely. The US Treasury and Federal Reserve started reducing their stake fairly rapidly in early 2011 as the firm restructured and returned to profitability. In fact, American taxpayers have largely escaped losses from their politicians’ bailout gambles: the government has already got $449 billion of their $605 billion outlay back.

These numbers don’t however account for risk or inflation and there are still hundreds of billions of dollars of loans to the likes of Fannie Mae and Freddie Mac outstanding. Nevertheless, progress compares very favourably to us.

Credit must be given to Jim Millstein, the former chief restructuring officer at the US Treasury and his team who have overseen a dramatic restructuring of the business which has halved its workforce and wound down poorly performing operations.

Stateside, bosses of bailed out institutions were regularly brought before Congress to explain what was being done to fix the company and how taxpayers’ money was going to be returned. This approach focussed minds and made executives aware that it couldn’t be business as usual with taxpayers’ money at stake.

Contrast this to our no scrutiny, no questions asked approach and it’s easy to see why we’re in such a mess. Politicians this side of the Atlantic should take note and make RBS and Lloyds employees more accountable to the taxpayers who kept them in their jobs. Major tax reform, as set out in the 2020 Tax Commission is needed so that our economy can manage better whatever the conditions in the global economy.

But taxpayers also need protection from the prevailing bailout culture. Matthew Sinclair has discussed proposals from Andrew Lilico which would do just this.Four years after the taxpayer funded bailout of insurance giant AIG, the US Treasury Department has sold off its last shares in the company. Over the last few years, the sale of shares has resulted in a nominal profit of $22 billion. The US government pumped more than $180 billion into the beleaguered firm in 2008 as the financial world was brought to its knees.

Just a few weeks later, RBS and Lloyds received bailout money to the tune of £37 billion, but returns similar to those from the AIG rescue are a distant dream to British taxpayers who are seemingly on the hook indefinitely. The US Treasury and Federal Reserve started reducing their stake fairly rapidly in early 2011 as the firm restructured and returned to profitability. In fact, American taxpayers have largely escaped losses from their politicians’ bailout gambles: the government has already got $449 billion of their $605 billion outlay back.

These numbers don’t however account for risk or inflation and there are still hundreds of billions of dollars of loans to the likes of Fannie Mae and Freddie Mac outstanding. Nevertheless, progress compares very favourably to us.

Credit must be given to Jim Millstein, the former chief restructuring officer at the US Treasury and his team who have overseen a dramatic restructuring of the business which has halved its workforce and wound down poorly performing operations.

Stateside, bosses of bailed out institutions were regularly brought before Congress to explain what was being done to fix the company and how taxpayers’ money was going to be returned. This approach focussed minds and made executives aware that it couldn’t be business as usual with taxpayers’ money at stake.

Contrast this to our no scrutiny, no questions asked approach and it’s easy to see why we’re in such a mess. Politicians this side of the Atlantic should take note and make RBS and Lloyds employees more accountable to the taxpayers who kept them in their jobs. Major tax reform, as set out in the 2020 Tax Commission is needed so that our economy can manage better whatever the conditions in the global economy.

But taxpayers also need protection from the prevailing bailout culture. Matthew Sinclair has discussed proposals from Andrew Lilico which would do just this.

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