<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By Deborah Solomon</p> <p>Treasury Secretary Tim Geithner may want to consider hosting "Extreme Makeover" as his next gig.</p> <p>After all, the <a href="http://www.bloomberg.com/quote/AIG:US">American International Group Inc</a>. rescue he helped engineer has come to a shiny, sparkling <a href="http://www.bloomberg.com/news/2012-12-10/aig-bailout-that-angered-bernanke-to-end-with-treasury-sale-1-.html">end</a> with a reconstructed company that's so attractive an investment it's generating a profit for the U.S. government.</p> <p>It's a Hollywood ending for a controversial rescue that many thought would never end -- or certainly not end well.</p> <p>But what is the moral of this seemingly feel-good tale? Will AIG's experience perpetuate moral hazard and make Washington less afraid to ride to a financial firm's rescue? Or will the Dodd-Frank law that AIG's rescue spawned prevent a sequel?</p> <p>This week, the Treasury Department <a href="http://www.treasury.gov/press-center/press-releases/Pages/tg1796.aspx">said</a> it will sell its remaining stake in AIG, bringing an end to the government's investment. The sale of 234 million shares at a price of $32.50 per share will help generate an overall $22.7 billion profit for the federal government. That amount stems from the holdings of both the U.S. Treasury and the Federal Reserve Bank of New York, which together extended AIG a $182 billion lifeline beginning in 2008.</p> <p>But Washington's rescue conveyed an even bigger benefit than just generating a profit: It returned the giant insurer to its roots as a primarily sleepy insurance company, helping to suck risk out of the financial system. AIG, with the assistance of a government-orchestrated restructuring led by former Treasury official <a href="http://www.millsteinandco.com/secondary.asp?pageID=2">Jim Millstein</a>, was able to shed its riskier assets and find solid financial footing.</p> <p>AIG Chief Executive Officer <a href="http://topics.bloomberg.com/robert-benmosche/">Robert Benmosche</a>, the former CEO of MetLife Inc., has sold many of the company's units, including its consumer-finance and Asian life-insurance operations, to help repay the government and simplify AIG, as Bloomberg News <a href="http://www.bloomberg.com/news/2012-12-11/u-s-profit-on-aig-climbs-to-22-7-billion-on-share-sale.html">reports</a>. This week, Benmosche agreed to sell an 80 percent stake in the insurer’s plane-leasing unit. As of Sept. 30, AIG had about $550 billion in assets, compared with more than $1 trillion at the end of 2007.</p> <p>As Benmosche <a href="http://www.scribd.com/doc/116396086/A-I-G-Chief-s-Memo-on-U-S-Exit-From-Insurer">said</a> in a letter to employees, Treasury's final share sale "marks our second act." The company will<a href="http://www.bloomberg.com/news/2012-10-02/aig-says-oversight-panel-weighing-systemic-risk-label.html"> likely</a> be regulated by the Federal Reserve as a "systemically important financial institution" and be required to hold higher levels of capital to counter any risk-taking.</p> <p>Treasury, meanwhile, is expected to make $5 billion on its investment, and the Fed will earn a $17.7 billion profit. That's a fairly unexpected ending to a rescue that at times seemed bottomless and threatened to topple Geithner. The Treasury secretary, who headed the New York Fed when AIG was rescued, was blasted for not stopping <a href="http://www.bloomberg.com/apps/news?pid=newsarchive&amp;sid=a_TbsRunotbQ">bonus payments</a> to AIG workers and for a <a href="http://www.bloomberg.com/apps/news?pid=newsarchive&amp;sid=aXIvW4igKV38">decision</a> allowing AIG to make counterparties, including Goldman Sachs Group Inc., whole.</p> <p>Those criticisms will persist, but the makeover Geithner helped orchestrate turned AIG into a much prettier version of itself -- a version it probably could not have achieved absent the government's help.</p> <p>(<a href="http://topics.bloomberg.com/deborah-solomon/">Deborah Solomon</a> is a member of the Bloomberg View editorial board. <a href="https://twitter.com/#!/deborah_solomon">Follow</a> her on Twitter.)</p> <p>Read more breaking commentary from Bloomberg View at <a href="http://www.bloomberg.com/view/the-ticker/">the Ticker</a>.</p> </body> </html>