Two shorthand references often used these days are how “US taxpayers own 80% of AIG” and “the government has invested more than $170 billion” in bailing AIG out. There is something in both common expressions. But the entire corporate finance and corporate governance structure put in place, and endlessly changing, is so unorthodox, that these expressions do not reflect their usually meanings.
Using them can be misleading in two different directions: (1) in terms of the 80% ownership notion, “taxpayers” have vastly diminished rights compared to the usual rights of corporate shareholders and (2) in terms of the $170 billion figure, the taxpayers have vastly less invested than that.
As to the ownership notion, a Trust whose sole beneficiary is the Treasury Department owns a series of AIG preferred stock (called Series C) that is convertible into AIG common stock that would represent 77.9% of AIG’s outstanding common shares, if converted. For now, the Trust also gets to vote on proposals to AIG’s common shareholders, including director elections, as if the preferred were converted, and receive dividends paid on common stock, as if it were converted.
But surely the “taxpayers” do not own that stock and certainly have no right to elect AIG’s directors. The Trust does. That Trust, in turn, is managed by three Trustees. These people are appointed by Treasury, not by taxpayers. The Trustees do not stand for election. Further, the Treasury Secretary is not elected by taxpayers, or removable by them, but is appointed by the President, and removable by him. The President, of course, serves a four-year term, whereas corporate director elections occur annually.