Was the AIG Bailout Botched?

The New York Fed succumbed during “high-pressure negotiations” during last year’s bailout of the American International Group (AIG), according to a government report detailed in today’s New York Times. The paper says that the New York Fed seemed to have “little leverage” during the discussions, largely because it had already spent $85 billion to keep the insurer alive. However this report says that, in reality, the Fed “refused to use its considerable leverage.” Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, writes in the report that the Fed’s half-hearted negotiations provided what he calls a “backdoor bailout” to A.I.G.’s banks. Goldman Sachs (GS) was on that list of banks. According to the article,  "Among its notable findings, the report challenged Goldman’s position that it should not have been forced to bear losses on its dealings with A.I.G. because it had successfully hedged away any exposure. Mr. Barofsky said that Goldman’s hedges were unlikely to have held up amid the market turbulence of late last year."

GM lost $1.2 billion in the third quarter, but the automaker has begun paying back part of the $50 billion bailout that it got from the federal government. Yesterday’s earnings report was encouraging news, even for those who are skeptical about the car company’s prospects, the New York Times says in a front-page story. The paper says, “G.M.’s results showed a healthier balance sheet, ample cash, and factory production much more in line with consumer demand—improvements it owes largely to the bankruptcy process, the helping hand of the federal government and a modest increase in car sales.” Still, the article places the news in context of Ford’s (F) latest earnings report, in which GM’s “cross-town rival” boasted a $1 billion third-quarter profit without any federal help.

This morning’s Wall Street Journal would like to introduce you to “America’s newest land baron: The FDIC.” The paper explains, “In the past two years, the FDIC has taken over 150 failed banks. In the process, it has seized more than 5,000 houses, subdivisions, buildings, parcels and other foreclosed assets. The current backlog of property stuck on the agency's books, with an appraised value of $1.8 billion, ranges from an $18,700 clapboard home with stained carpets in Birmingham, Ala., to a $1.7 million mountainside lodge with a heated driveway in Steamboat Springs, Colo.” It takes the agency, on average, half a year or more to sell a property, many of which are run-down or not even completed. Summing it up, the article says that the government—and taxpayers—are paying for other peoples’ bad real-estate decisions. It says, “The financial crisis started with Americans buying homes they couldn't afford. It is ending with the government struggling to sell buildings it never wanted.”

Ben Bernanke is still talking about our jobless recovery, according to the Washington Post. In a debate at the Economic Club of New York, the Fed Chairman reminded everyone about the sorry state of unemployment. Bernanke said, "The best thing we can say about the labor market right now is that it may be getting worse more slowly." Unemployment hit 10.2 percent in last month and is expected to keep rising. The WSJ’s write-up of the event agrees that Bernanke’s evalutation of the economy was “dreary” and noted that his warnings that “persistent high unemployment, tepid bank lending and continued troubles in commercial real estate would blemish and weaken the rebound.”

The latest SEC filings reveal that Warren Buffett’s investment in Wal-Mart (WMT) have almost doubled. The Wall Street Journal reports, “Mr. Buffett increased his holdings of Wal-Mart, the world's largest retailer, to 37.8 million shares on Sept. 30 from 19.9 million shares at the end of June.” The stock isn’t a very startling pick. The retailer has been a safe bet throughout the downturn, handily beating out other stores in terms of customer traffic and discount offerings. Besides Wal-Mart, the legendary investor also blessed various other companies across a diverse range of industries—including a corporate insurance company, food company Nestle, and a waste-management firm—with increased investment.

Finally, the New York Times says that airlines are experimenting with selling more retail products to fliers. The paper reports that American Airlines has started selling Heathrow Express train tickets on flights to London, in addition to internet access and catalog items to people on board. The flying customer does seem to be a retailer’s dream. “Look at what’s going on in airports,” says a marketing professor interviewed in the article. “Anytime you have customers who are captive, who have nothing better to do, they’ll shop.”