In Ironic Twist, Taxpayers May Be On The Hook For Some Madoff Losses, Via AIG

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Looks like another victim of the Bernard Madoff mess — albeit a very minor one — is the US taxpayer.

In September, as part of its bailout effort, the Treasury Department made an $85 billion loan to insurance giant AIG, and got a 79.9 percent stake in the company.

And AIG appears to be exposed to Madoff’s alleged fraud. As part of its homeowners coverage, the company offers a “fraud safeguard” policy, which would seem to cover some Madoff investors.

From the company’s website:

AIG Fraud SafeGuard® – Personal financial loss can come in many forms: identity theft, investment schemes, dishonest advisors, forgery, etc. Coverage is available to help protect you and your family. (itals ours)

We’re not talking big numbers here. An AIG spokesman told TPMmuckraker that the company had so far received 85 “notices” of claims related to Madoff, which cover up to $100,000. Even if you assume that all those claims will be paid out at the $100,000 maximum (which they almost certainly won’t), that only puts the company on the hook for $8.5 million — pocket change for a firm of AIG’s size. The company could yet receive more claims, but the total dollar amount at issue would likely remain relatively small.

Still, Madoff’s fall appears to have been precipitated by the spiraling financial crisis — he was unable, it appears, to meet obligations to the rush of investors spooked by the turmoil and wanting to withdraw their money. So it’s ironic that, thanks to that same crisis, we all could technically be on the hook for his alleged crimes.

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