Where Treasury Put Its AIG Profits
Posted at 9:45 a.m. on Dec. 13, 2012
John Carney has a fascinating look at what exactly happened when the US Treasury sold its shares of AIG earlier this year.
“All of its profits wind up in the government’s general fund. So it actually faces something like a 100 percent capital gains tax. What’s more, it forfeits not only its gains but all of the proceeds from the sale.”
“The investors buying the shares of AIG from Treasury make payments to JP Morgan Chase, which acts as the administrative agent for the deal. The Treasury and JP Morgan then sign agreements authorizing the money to be transferred via the Federal Reserve’s Fedwire Funds Service to the Treasury’s account at Bank of New York Mellon. What this means is that the Fed debits the digital account of JP Morgan and credits the account of BoNY with the money.”
“The real-world effect is to reduce the amount of money the government will borrow by a tiny bit.”