The most incredible headline flashed across the screen, AIG is thinking of suing the Federal Government for bailing them out. This is the company at the heart of financial contagion. AIG had created derivative dominoes where if one financial institution failed, that one institutional failure would trigger credit default swaps derivatives which in turn would collapse the entire global system.
The board of A.I.G. will meet on Wednesday to consider joining a $25 billion shareholder lawsuit against the government, court records show. The lawsuit does not argue that government help was not needed. It contends that the onerous nature of the rescue — the taking of what became a 92 percent stake in the company, the deal’s high interest rates and the funneling of billions to the insurer’s Wall Street clients — deprived shareholders of tens of billions of dollars and violated the Fifth Amendment, which prohibits the taking of private property for “public use, without just compensation.”
Right O! This is happening while AIG is on a public relations campaign with op-eds, TV ads and tweets thanking America for saving the company. The lawsuit in question is being brought by Maurice Greenberg, former AIG CEO. Greenberg was the subject of a 2005 intense probe by then New York attorney general Elliot Spitzer which forced Greenberg out of the company. During the height of the AIG bail outs, they also clawed back a charity, just to pay executives their bonuses.
Greenberg, through holding company Starr International, owned 12% of AIG stock in 2008 and is upset that the bail out diluted his shares, The suit also claims the government charged a supposed 14% interest rate on one of the AIG loans. Of merit to us might be this claim:
The government, Starr argues, used billions of dollars from A.I.G. to settle credit-default swaps the insurer had with banks like Goldman Sachs. The deal, according to the lawsuit, empowered the government to carry out a “backdoor bailout” of Wall Street.
Lest we not forget if AIG hadn't been bailed out they would have been liquidated in bankruptcy and all shareholder value would have been a big, fat zero.
Beginning in 2008, the federal government poured billions of dollars into AIG to save it from bankruptcy. AIG's reckless bets nearly crashed our entire economy. Taxpayers across this country saved AIG from ruin, and it would be outrageous for this company to turn around and sue the federal government because they think the deal wasn't generous enough.
Even today, the government provides an ongoing, stealth bailout, propping up AIG with special tax breaks -- tax breaks that Congress should stop. AIG should thank American taxpayers for their help, not bite the hand that fed them for helping them out in a crisis.
We find it outrageous too. The New York Times is giving AIG a break, saying if they do not at least consider joining Greenberg's lawsuit, they will open themselves up to even more litigation from shareholders.
Greenberg has the big guns on this case. The suit's lead attorney is David Boies, if anyone remembers election 2000 and the U.S. Supreme court ruling which shut down the Gore-Bush vote recount. While AIG is touting a $22.7 billion profit for the government from all of the bail outs, it's not that simple. AIG received special tax breaks for years to come which will cost taxpayers billions.
We doubt sincerely AIG is actually going to sign up for this turkey. Joining a civil lawsuit against the government would be a public relations disaster. The government in fact treated AIG, along with their shareholders, much better than the suit alleges, at taxpayer's expense. Now suing Goldman Sachs and others for receiving 100% payouts on various credit default swaps issued by AIG, that would be much more interesting argument.
Update: As expected, AIG rejected joining Greenberg's lawsuit. AIG did not go there.
The board of the American International Group has declined to join a lawsuit against the federal government over its $182 billion taxpayer-financed bailout, the company said on Wednesday.
Update 2: AIG is suing the New York Fed for preventing them from suing Bank of America and others who either originated or bundled into derivatives worthless mortgages (i.e. MBSes and CDOs with tranched MBSes) upon which they issued CDSes. We'll have more details on this action, but for now yes, AIG is suing, but the right organizations, not the wrong ones.