Corporate Crony Entitlement

This story is simply  unbelievable.  Shareholders of AIG should have been wiped out in 2008 in a bankruptcy or liquidation after it lost tens of billions of dollars making bad bets on insuring mortgage securities.  Instead, AIG management and shareholders were bailed out by taxpayers.

It is bad enough I have to endure those awful commercials with AIG employees "thanking" me for their bailout.  It's like the thief who stole my TV sending me occasional emails telling me how much he is enjoying it.

Now, AIG managers and owners are considering suing the government because the the amazing special only-good-for-a-powerful-and-connected-company deal they got was not good enough.

Directors at American International Group Inc., AIG -1.28% the recipient of one of the biggest government bailout packages during the financial crisis, are considering whether to join a lawsuit that accuses the U.S. government of too-onerous terms in the 2008-2009 rescue package.

The directors will hear arguments on Wednesday both for and against joining the $25 billion suit, a person briefed on the matter said. The suit was filed in 2011 on behalf of Starr International Co., a once very large AIG shareholder that is led by former AIG Chief Executive Maurice "Hank" Greenberg. It is pending in a federal claims court in Washington, D.C....

Starr sued the government in 2011, saying its taking of a roughly 80% AIG stake and extending tens of billions of dollars in credit with an onerous initial interest rate of roughly 15% deprived shareholders of their due process and equal protection rights.

This is especially hilarious since it coincides with those miserable commercials celebrating how AIG has successfully paid off all these supposedly too-onerous obligations.  And certainly Starr and other AIG investors were perfectly free not to take cash from the government in 2008 and line up some other private source of financing.  Oh, you mean no one else wanted to voluntarily put money into AIG in 2008?  No kidding.

Postscript:  By the way, employees of AIG, you have not paid off all the costs of your bailout and you never will.  The single largest cost is the contribution to moral hazard, the precedent that insurance companies, if sufficiently large and well-connected in Washington, can reap profits on their bets when they go the right way, and turn to the taxpayer to cover the bets when they go wrong.

  • Bram

    Post Postscript: The State of New York will never repay AIG stockholders or the U.S. taxpayers for damage they did to AIG in 2005 / 2006.

    Eliot Spitzer was an Attorney General who wanted to be Governor and needed some scalps for his belt. He brought down long-time AIG CEO Hank Greenberg and forced the board to replace him with Martin Sullivan - who immediately ran the firm into ruinous bankruptcy.

    None of Spitzer's charges or lawsuits ever stuck on Greenberg but they achieved their purpose - getting Spitzer elected Governor.

  • marque2

    Insurance is kinda interesting. They get a bunch of Actuaries to calculate reserve needs and rates, based on certain assumptions. they are required to have an independent third party group of actuaries independently do the calculations and assess the assumptions to make sure the reserves are enough, and then this data goes to a government agency which reviews and approves the plan.

    If a government agency basically certifies the company and their plan, doesn't that make the government responsible if the plan goes awry? - Assuming no fraud on the part of the Insurance company of course.

  • randian

    "If a government agency basically certifies the company and their plan, doesn't that make the government responsible if the plan goes awry?"

    You'd think so, but no. Government standards do not deflect liability, though in most cases I think they should.

  • http://twitter.com/3rdMoment 3rdMoment

    Yes, this is absurd. I would hope there is no chance of Greenberg prevailing in court.

    However, if there is some reasonable chance, then it would seem the board would need to join the suit. Not to do so would be against the board's fiduciary duty, and risk a shareholder lawsuit. But in that case, you should blame the courts, not AIG.

  • marque2

    You are right except in the AIG case. But dang, if the government sticks their noses so deeply into the business, to the point of approving the plan - I would think that the government workers should have thought, hey maybe these assumptions are too optimistic. Just goes to show how worthless government regulators can be.