AIG to Reduce Debt - What?

The headlines are ablaze with N.Y. Fed to Trim AIG Debt, Receive $25 Billion Stake in Two Subsidiaries:

American International Group announced yesterday that it has reached a deal to reduce its debt to the Federal Reserve Bank of New York by $25 billion.

Under the agreement, AIG will split off AIA and Alico into separate company-owned entities called "special purpose vehicles," or SPVs. The New York Fed will receive preferred shares now valued at $25 billion -- $16 billion in AIA and $9 billion in Alico -- and in exchange will forgive an equal amount of AIG debt.

What?  Since when is obtaining preferred shares of questionable value in exchange for U.S. taxpayer dollars debt reduction? Last I heard exchanging preferred shares for funds from the government was called a BAIL OUT. Ya know that thing called TARP?

AIG and the government must believe the spotlight is fading on the financial crisis, so now we return to media spin.

After a long hard dig, wading through the Michael Jackson stories, finally, Seeking Alpha has a more apt article title.

AIG Dumps Two Toxic Assets on the Fed

AIG, unable to sell its two "crown jewel" businesses to anyone for real money, has slapped theoretical values on them and transferred stakes to the Fed in exchange for a reduction in the debit balance they have with the Fed.

In layman's terms: AIG tried to sell their two "prime" businesses, AIA and Alico. They couldn't get the price they wanted, so they sold the businesses to the Fed instead. The Fed is getting $16B worth of AIA preferred shares, and $9B worth of Alico preferred shares, and AIG's balance due to the Fed is being decreased by $25B.

Owning massive stakes in the banks and auto industries wasn't enough for the Government, I guess.

We could be in the cover of darkness due to Michael Jackson's death. Beware of the Wacko Jacko 24/7 media frenzy. There is no doubt every pore on Michael Jackson's restructured face will be analyzed, complete with a plastic surgery history for each follicle, during the next week.

Under the cover of media darkness is when the spin comes in.

Number of youtube views of a Michael Jackson video? In the millions. Number of views on any financial crisis related youtube? In the thousands to sometimes less than 17.

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NY Fed has too much skin in the game.

Don't forget the Maiden Lane fiascoes. Fed is losing money daily on those assets it purchased in order to cancel CDS contracts.

This doesn't help Fed that much and may be a problem when they try to take the companies public with NY Fed still owning a portion of these companies. Why is AIG not being fully wind down? AIG is an absolute zombie that should be put out of its misery by a complete liquidation of its assets. NY Fed should force a liquidation and try to recoup some of its "investments" in AIG.

I was just reading

and I cannot find it, a host of discrepancies on funds by the Fed to various companies on the bail out.

I think we answered the question of why AIG is not really being wound down and that's because of the payouts to other Zombie institutions through AIG.