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Paulson: AIG bailout designed to be punishment

By WTOP Staff

JOSH BOAK
AP Economics Writer

WASHINGTON (AP) — The 2008 government bailout of American International Group Inc. was specifically designed to punish the insurance giant, former Treasury Secretary Henry Paulson said in U.S. court Monday.

The $85 billion loan package extended to AIG — then reeling from the financial and housing crisis — gave the government control of 80 percent of its stock. Unlike other major financial firms rescued in the middle of the worst economic downturn in roughly 80 years, Paulson said that AIG shareholders should have faced punishment for their troubled balance sheet as part of any rescue.

Paulson’s testimony came as part of a lawsuit brought by former AIG chairman and CEO Maurice Greenberg. The 89-year-old is suing the federal government for damages of roughly $40 billion, saying that it violated the Constitution’s Fifth Amendment by taking control of AIG without “just compensation” in return for the shares.

Paulson’s successor as Treasury secretary, Timothy Geithner, and former Fed Chairman Ben Bernanke are also scheduled to testify this week.

Federal officials didn’t want troubled financial institutions to assume they could receive a bailout without any negative consequences. Otherwise, it might encourage those firms to engage in reckless behavior. This concept known as “moral hazard” applied to AIG but not other banks because of the multiple pressures that existed in the market in September and October of 2008.

At the time, financial investors known as short-sellers were betting that shares in AIG and prominent banks such as Citigroup would continue to plunge. Paulson said that his goal was to stabilize the financial system, which meant that the government offered less punishing terms to the banks being bailed out in order to limit the market freefall. But few other insurers faced the same risks as AIG, so the Federal Reserve-backed loan could punish shareholders to prevent moral hazard.

“I believe the Fed-designed AIG terms were appropriate,” Paulson said in testimony at the U.S. Court of Federal Claims. “I didn’t see any other insurance company that was vulnerable or like AIG.”

Greenberg’s lawyer, David Boies, pressed Paulson in court about whether the former Treasury secretary was overly harsh on AIG in order to quell public anger and pass the Troubled Asset Relief Program. At the time, some congressmen were reluctant to pass the $700 billion TARP, a program to buy troubled bank assets that could be viewed by critics as a giveaway to Wall Street.

Paulson said he contacted both 2008 presidential candidates — Democrat Barack Obama and Republican John McCain — and emphasized that AIG shareholders were being punished as part of the bailout.

AIG “certainly was a scapegoat for Wall Street and all the bad practices that people were angry about,” Paulson said.

The government eventually provided AIG with $182 billion in loans, which have been repaid. AIG has since returned to profitability, and its stock has risen more than 45 percent over the past two years to more than $52 a share.

Since 2008, the company has sharpened its focus on its core insurance business, selling non-core units such as International Lease Finance Corp. for $7.6 billion. ILFC, now owned by Netherlands-based AerCap Holdings, leases aircraft.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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