In the never-ending drama of the 2008 bailouts, AIG has gone from thanking America in a major ad buy to threatening to sue the federal government. As reported by Reuters via Huffington Post:
AIG confirmed on Tuesday that its board would meet Wednesday to discuss joining a lawsuit filed against the government by the insurer’s former chief executive, Maurice “Hank” Greenberg.
Greenberg, whose Starr International owned 12 percent of AIG before its near-collapse, has accused the New York Fed of using the rescue to bail out Wall Street banks at the expense of shareholders, and of being a “loan shark” by charging exorbitant interest on the initial loan.
A federal judge in Manhattan dismissed Greenberg’s suit in November; a separate suit under different legal theories in the U.S. Court of Federal Claims is still pending.
On the one hand, this is utterly ridiculous. AIG was saved by government intervention, and now within a month of paying off its loan it is considering suing? Additionally, what did AIG’s executives expect when the bailout happened? Did they think they were going to be treated like kings?
While I am open to being a little sympathetic to potential improprieties by the federal government – one of many reasons bailouts are bad – the fact is that AIG took a loan from the federal government. It did so knowing it would go bankrupt otherwise, and that stockholders would probably lose more value than whatever expenses they allegedly incurred due to federal mismanagement or corruption. Lastly, I have strong doubts AIG’s executives were at all surprised at the interest rate when they signed for the loan under their own free will.
The drama of 2008 is still unfolding, as is the cost of the bailout. Another reason the federal government should not bail out companies ever again.
Update: Tuesday night, The Washington Post reported AIG’s Board of Directors had decided to not join former CEO Maurice Greenberg in suing the federal government over the terms of the 2008 federal bailout of the company. The company, which was legally required to consider the lawsuit, decided the public backlash would be too great:
AIG, which was legally obligated to consider joining the lawsuit, demurred. The company said it would not join Greenberg’s lawsuit and wouldn’t permit Greenberg to pursue his claims in AIG’s name.
“The majority of directors decided that the reputational damage was greater than the possibility on a long-shot lawsuit,” said John Coffee, a professor at Columbia Law School who specializes in corporate and securities law.
This was a good decision by the AIG Board.