On Monday a report has been released by a government watchdog stating the treasury department’s prediction that the losses incurred by the taxpayers will be way less than what was expected due to the bailout of the AIG or American International Group is too much of optimism.

And moreover the new estimate had banked on different methodologies that were not applied before for making estimates.

According to the assessment made by the special inspector general for the government’s Troubled Assets Relief Program the estimate given by Treasury can fetch the taxpayers low returns if the AIG stocks under perform.

The reported expressed concerns stating that the recent estimate of five billion dollar losses given by the Treasury for the TARP investment in AIG is way below estimates given by them earlier.

They have announced the same after making a complex restructuring deal with the insurance firm and did not take into account the instability of AIG stocks that might happen any time. That very well can result in losses as well as gains.

The changed estimate came largely due to the application of methods used for valuing what types of changes Treasury brought to AIG stocks. Under the restructuring deal Treasury swapped off more than forty nine billion dollars worth preferred shares in AIG for one decimal seven billion common shares.

According to the TARP inspector general, Neil Barofsky the Treasury officials were not transparent enough about the change when they disclosed the new valuation approach in a recent demonstration of the TARP program. Thus Treasury is facing criticism that it has manipulated its methodology for computing the losses.

The Treasury department seemed to have taken the criticism very gravely and could not take it in the right spirit. Jim Millstein, Treasury’s chief restructuring officer stated that it is not fair to accuse them of not being transparent. He sounded confident that taxpayers won’t loose money for the AIG bailout.