If you’ve been following recent developments in the AIG (American International Group) story, or even if you’ve just been watching a fair amount of television in the past week, you may have seen their new
"F*ck you, America!" “Thank you, America!” ad campaign. (Here’s a LINK to their new TV spot via YouTube.) In it, they thank the country’s taxpayers for bailing them out to the tune of $182+ billion, starting in late 2008. In fact, it was really a massive, back-door/stealth bailout of numerous AIG counterparties — the too-big-to-fail, large Wall Street firms on the other side of AIG’s credit default swaps (CDS, derivatives) contracts.
Tonight, the folks over at the New York Times’ Dealbook are breaking a story regarding an upcoming, Wednesday meeting of AIG’s Board of Directors, where their sole topic of discussion will be their consideration of whether or not to join their shareholders in a $25 billion lawsuit against the U.S. government.
From the Department of You-Can't-Make-This-Sh*t-Up....
Rescued by a Bailout, A.I.G. May Sue Its SaviorThe article continues on to note that the choice of whether or not the Board enters into the suit “...is not a simple one for the insurer.”
BEN PROTESS and MICHAEL J. DE LA MERCED
New York Times
January 7, 2013, 10:30 PM EST
…Behind the scenes, the restored insurance company is weighing whether to tell the government agencies that rescued it during the financial crisis: thanks, but you cheated our shareholders.
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.”
Maurice R. Greenberg, A.I.G.’s former chief executive, who remains a major investor in the company, filed the lawsuit in 2011 on behalf of fellow shareholders. He has since urged A.I.G. to join the case, a move that could nudge the government into settlement talks…
We’re informed that most of the members of the Board joined it after the bailout; and, by law, they have a fiduciary responsibility to their shareholders. Exacerbating the matter, former CEO Greenberg could challenge the Board’s decision if they abstain from entering into the litigation fray.
And, it’s pointed out in the Times’ piece that if Greenberg were to receive a settlement on his own, “…the company could face additional lawsuits from other shareholders.”
The article continues on to note the obvious: It would be perceived as “an audacious display of ingratitude” in Washington (where the case would be tried, since it was dismissed in a separate effort in New York), where "…the company has become a byword for excessive risk-taking on Wall Street.”
...The government, Starr [former CEO Greenberg’s company] 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.Additionally, the Times’ report tells us that Greenberg’s complaint also cites “punitive” interest of 14% on loans made by the government to AIG, as well as the fact that the government’s takeover of AIG, at the time, “diluted the holdings of existing shareholders.”
Starr argued that the actions violated the Fifth Amendment. “The government is not empowered to trample shareholder and property rights even in the midst of a financial emergency,” the Starr complaint says...
No sh*t! And, of course, Greenberg/Starr doesn’t mention in their complaint the inconvenient reality that the company wouldn’t even exist today, because its only other option at the time of the bailout was to enter into bankruptcy,
As the NYT article, much like AIG’s newest TV commercial reminds us, “…in 2010, the insurer embarked on a series of moves aimed at repaying its taxpayer-financed bailout, including selling major divisions. It also held a number of stock offerings for the government to reduce its stake, which eventually generated a roughly $22 billion profit.”
The NYT’s Dealbook story notes that the final decision by AIG’s Board, as to whether or not it will participate in the litigation, will be made by the end of the month.
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I've written about the AIG bailout in more than 65 posts here, starting on September 20th, 2008. Here's a LINK to one of my favorites, with all of the numbers, and chock full of other goodies.
Hmm...let's see....$25 billion settlement minus $22 billion "profit"...subtract the 2 from the 5...equals $3 billion in red ink...and at least $80 to $90 billion of the original $182+ billion AIG bailout (that we know about) was paid to their counterparties...and Wall Street has been receiving over $200 billion per year in stealthy bailouts††† from our government, ever since (at a minimum, and this is an extremely conservative number)...Wow! Pretty soon we're gonna' be talkin' about "real money!"
Let the cognitive dissonance begin! In three...two...one...
UPDATE (2:00PM, 1/8/13):
From the comments, Kossack rugbymom has an interesting, "educated" take on the story which I thought was worth sharing:
As an AIG shareholder (1+ / 0-)
at the time of the bailout, I have more than a little sympathy for the underlying theory. The value of the stock plunged something like 95% practically overnight, with a 20:1 reverse stock split, and with no warning at least to retail investors. At the time I wondered about the 5th Amendment "takings" argument.
The best counter-argument seems to be that in the absence of a bailout, AIG would have gone bankrupt (due to credit default swaps going bad) and taken out most of the rest of the financial sector with it, so the value of the stock would have plunged anyway.
However, as far as I can tell (having watched the company for 30 years, as my ex-husband worked there until 1996) the underlying litigation here is part of the ongoing pissing contest within AIG between Greenberg (and cronies) and the current Board, in which Greenberg continues to try to destroy the company in retaliation for having forced him out. Since the current Board is not friendly to Greenberg, I consider the chance that they will join his lawsuit pretty remote.
Greenberg may (or may not) have an action against the Board for selling out the shareholders too cheap. I can't see that he gets anywhere on a theory that the US Government had some sort of obligation to bail out AIG on terms more favorable to the shareholders than what the then-AIG Board was willing to agree to.
by rugbymom on Tue Jan 08, 2013 at 01:44:50 PM EST