Will bailed-out insurance giant bite the hand that fed it?
During the 2008 financial crisis, no company more resembled roadkill than American International Group. In a fit of greed and insanity, the insurance giant had agreed to backstop trillions of dollars in mortgages without setting aside reserves to cover potential losses. When the housing market tanked, AIG found itself on the brink of collapse.
OPPOSING VIEW: Give shareholders their day in court
Enter the U.S. government. On Sept. 16 of that year, fearful that AIG's collapse would trigger bank failures and a depression, the government lent the company $85 billion to plug an immense chasm in its books. Over time, the taxpayers' investment grew to a staggering $182 billion and its stake in the company to 92%. That action saved AIG from a bankruptcy that would have paralyzed global credit markets and wiped out shareholders.
At the time, virtually no one thought taxpayers would get their money back, but then a funny thing happened. After the company hired a new CEO in 2009, it began to make smart decisions and flourish. When the government sold its last shares a month ago, it had reclaimed all of its money, plus a profit of $22.7 billion.
This narrative is a pleasant surprise. But apparently not pleasant enough for Maurice R. "Hank" Greenberg, the CEO who was virtually synonymous with the company he ran from 1968 to 2005.
Greenberg's new company, Starr International, is suing the government for $25 billion, asserting that AIG shareholders got a raw deal. One of his two suits has been dismissed already. But he is pressing on. And today, AIG's board of directors is scheduled to consider whether the company itself should join in.
Suffice it to say that this litigation, particularly if the company joins in, is outrageous on its face. It is wrapped in Fifth Amendment jargon about government not taking property without just compensation, but it is a stupefying act of ingratitude, little more than a scam to loot taxpayers who saved the plaintiffs' skins.
How could there have been an unlawful taking when there was nothing to take? Are we supposed to believe that shareholders could have gotten a better deal in the midst of a financial meltdown from some other entity, one with $182 billion to invest in a cratering company?
The government is a notorious patsy in such matters, known to give its bargaining partners more than they deserve. In the General Motors rescue, for instance, it allowed sweet deals for the unions and dealers, and let some pre-bankrupcy creditors get paid in full while taxpayers almost certainly will sustain a loss.
But it has plenty of incentive to stiff Greenberg and AIG. The audacity of the suit is a fresh reminder of the greed and arrogance that caused the collapse of 2008 and of how little has been done about it.
None of those responsible is in jail. Too-big-to-fail institutions can still use the certainty of bailouts to take on excessive risk. And, despite the passage of financial reform legislation, the law still is bent in Wall Street's favor.
The plaintiffs argue that AIG directors have a fiduciary responsibility to get shareholders every dime they can. Really? In these circumstances? By these means? If that's true, corporate integrity has sunk to a new low. Shareholders should be thankful they have anything at all.
The government's action to rescue AIG was one of the broader bailout's biggest successes. It saved the company and, very likely, the economy. It cut an acceptable deal for taxpayers and even let shareholders keep a stake. And now AIG, which has been running "Thank you America" ads, might turn around and sue the government? You have to be kidding.
Source: http://www.news.theusalinks.com/2013/01/08/editorial-aig-dont-sue-america/
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