# AIG Shareholders Suing the Government Over the AIG Bailout **URL:** \ **Category:** Great Debates\ **Created:** [January 8, 2013, 11:04pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554 "2013-01-08T23:04:12Z")\ **Posts on this page:** 19\ **Page:** 4
**Author:** ![JohnT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/johnt/32/15048_2.png) [@JohnT](https://boards.straightdope.com/u/JohnT)\ **Post date:** [January 15, 2013, 10:33pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/61 "2013-01-15T22:33:05Z")
> [@Fotheringay-Phipps](#): > > I don’t think that’s how it works. They couldn’t just tell GS (or anyone) that they were SOL, because GS had the option of forcing a bankruptcy and seeing what they could get in BK court. Well, the bankruptcy option was tried (with Lehman Bros (LB)), and we see how that turned out. A GS bankruptcy would have been even more debilitating to the markets, requiring them to be bailed out. An AIG bankruptcy would not only have capsized the financial markets, those people who depended upon their insurance products would have been royally screwed as well. At least with the bailout, AIG was able to continue as an insurer. Without it, over a trillion dollars in insurance obligations would have… vanished, leaving millions of people in a financial calamity not of their making. Greenberg’s case only makes sense if you look at it in a vacuum. The consequences of an AIG bankruptcy on the overall US economy would have been… “disastrous” is too meager a word for it. Given the damage that did occur because of the LB bankruptcy, it is with near 100% certainty that the Great Recession would have become the Greater Depression had the US government allowed AIG, Merrill, GS, JPM, and more to fail. And Greenberg, instead of tossing lawsuits around, would have been selling apples on a street corner. ---
**Author:** ![JohnT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/johnt/32/15048_2.png) [@JohnT](https://boards.straightdope.com/u/JohnT)\ **Post date:** [January 15, 2013, 10:41pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/62 "2013-01-15T22:41:52Z")
FYI, the Barclay’s/LB deal fell apart because the UK Government wanted assurances from the US Government that they would be made whole in case additional holes in LB’s books were found. Any SWF would have asked for the same assurances in buying into AIG, which means that the US Government would have still bailed out AIG’s problems - but now in a climate where, instead of paying $185 billion to make whole counterparties which were largely US companies, they would pay $185 billion to a foreign entity. Can you imagine the headlines? “US GOVT TO PAY FRANCE $185 BILLION TO CLOSE AIG PURCHASE!” Good times, indeed. 😉 ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [January 16, 2013, 3:49pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/63 "2013-01-16T15:49:35Z")
> [@JohnT](#): > > Well, the bankruptcy option was tried (with Lehman Bros (LB)), and we see how that turned out. A GS bankruptcy would have been even more debilitating to the markets, requiring them to be bailed out. An AIG bankruptcy would not only have capsized the financial markets, those people who depended upon their insurance products would have been royally screwed as well. At least with the bailout, AIG was able to continue as an insurer. Without it, over a trillion dollars in insurance obligations would have… vanished, leaving millions of people in a financial calamity not of their making. The insurance parts of the company would have to have their own segregated assets. That’s mandated under insurance regulations. In addition, the company had some assets in any event. Just not enough. But the creditors would not have gotten zero. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [January 16, 2013, 10:45pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/64 "2013-01-16T22:45:05Z")
> [@Esox\_Lucius](#): > > But he wouldn’t _deserve_ his day in court if he’s just blowing smoke. IANAL, but can’t a case be rejected as frivolous before it’s heard by the court, which involves I assume some review of the basis for the suit? Motion to dismiss. > [@Fotheringay-Phipps](#): > > Seems to be a couple of misconceptions here. > > 1. Companies like AIG don’t go bankrupt in a 24 hour period. It’s not like someone woke one day out of the blue and realized that AIG had 24 hours to raise some cash before it went BK. AIG’s troubles had been apparent for some time. > > I don’t think Greenberg is alleging that at that late hour soverign wealth funds were lined up ready to invest. He is alleging that earlier in the process there were such funds who might have stepped in were it not for opposition by the US government. I have not heard anything to indicate that there was any interested parties between the Lehman crash and the bailout. > [@](#): > > 1. AIG did not need $100B in liquid cash at that time. They just needed entities with resources in that general range to agree to stand behind AIG’s liabilities. > > I don’t know, but at any rate it’s apparently not frivolous to that level, because it was not tossed out of court on those grounds. How many entities do you think have $100 billion to risk on one investment? > [@Fotheringay-Phipps](#): > > Presumably the idea is that the US government was reluctant to allow foreigners in. You mean the way they were letting foreign ayuto companies buy our auto companies (and putting some money into the deal to sweeten the pot)? Or the way they were trying to sell Lehman to UK banks? Maybe I’ don’t understand what youa re trying to say > [@Fotheringay-Phipps](#): > > Also, as noted, had they taken a harder line on their counterparties, they might have needed less yet. I agree with this but it would STILL have left the old AIG owners with worthless stock. > [@JohnT](#): > > Yes, but if they told (for example) Goldman that they weren’t getting collateral, that they were going to be SOL on their obligations, then Goldman would have gone under, causing the US Government to bail _them_ out. (This is an example - GS would have likely been OK, but other counter parties would not have. GS just came to mind while writing this sentence.) AIG wasn’t insolvent because it couldn’t pay anything to GS, it was insolvent because it couldn’t pay everything it owed. GS was looking at a deep haircut, one that would have hurt it a lot but would have left Goldman solvent. > [@](#): > > AIG Financial Products (AIG FP) was the division that wrote all the CDS’s with collateral posting obligations written in their contracts. It may have been possible to structure the bailout so that AIG FP was “detached” from the main company, but then the new entity would have been completely worthless (to the tune of -$185 billion (at most, like you said)), with no desirable assets whatsoever. Who would buy into that? AIG had guaranteed the liabilities of the FP group, they couldn’t get away from it. > [@Fotheringay-Phipps](#): > > [OT: I personally find any non-payment of valid debt to be unethical - if it’s at all possible to pay it - so I find this line of argument very distasteful. But this is about the law, at this point.] They couldn’t pay all their obligations when due. > [@](#): > > Perhaps they could have given them some assets, e.g. the airline leasing business and other “non-core” assets (many of which were later sold in any event). Valuation of any assets at that time were not good. > [@Fotheringay-Phipps](#): > > The insurance parts of the company would have to have their own segregated assets. That’s mandated under insurance regulations. In a situation like that, the state insurance commissions would probably seize the assets and operations. ---
**Author:** ![JohnT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/johnt/32/15048_2.png) [@JohnT](https://boards.straightdope.com/u/JohnT)\ **Post date:** [January 16, 2013, 10:53pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/65 "2013-01-16T22:53:28Z")
Yes, as I noted GS was merely an example brought up while writing the sentence. Replace “GS” with “all counterparties” and the point still stands. The other point you referenced was in response to F-P’s question of whether AIG FP could have been spun off. My point was one reason they couldn’t have been spun off, you bring up another. ---
**Author:** ![Esox\_Lucius](https://avatars.discourse-cdn.com/v4/letter/e/848f3c/32.png) [@Esox\_Lucius](https://boards.straightdope.com/u/Esox_Lucius)\ **Post date:** [January 17, 2013, 12:45am UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/66 "2013-01-17T00:45:05Z")
> [@Fotheringay-Phipps](#): > > I don’t know, but at any rate it’s apparently not frivolous to that level, because it was not tossed out of court on those grounds. Actually, it has been rejected by one court but not another. From your original link: > [@](#): > > …the case, which is filed in both New York and Washington. A federal judge in New York dismissed the case, while the Washington court allowed it to proceed. Why one case is filed with two separate courts, and how it is treated differently by them, is beyond my layman’s understanding of the law, not that I’m keen on knowing. ---
**Author:** ![Ann\_Hedonia](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ann_hedonia/32/319_2.png) [@Ann\_Hedonia](https://boards.straightdope.com/u/Ann_Hedonia)\ **Post date:** [January 17, 2013, 3:37pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/67 "2013-01-17T15:37:05Z")
See link below [ Excerpt: Federal Judge Paul Engelmayer gave this dismissive description of Greenberg’s suit in a ruling late last year: To be sure, Starr’s Amended Complaint paints a portrait of government treachery worthy of an Oliver Stone movie. Starr claims that, as the global financial system teetered on the brink of collapse, FRBNY seized control of AIG. Then, Starr claims, FRBNY, in an act of Napoleonic plunder, stole AIG’s assets, re-distributing some to shore up other flagging financial institutions while keeping much of the residue for itself. You know what’s funny about this? IT’S TRUE! The Fed, the U.S. Government, and the less-completely-fucked Wall Street powers like Goldman and Barclays and Citigroup absolutely did conspire to seize AIG and then use a monstrous mixture of AIG’s assets and public money to keep themselves alive. In essence, AIG was the helpless fat guy in the lifeboat who got eaten when the rest of the survivors ran out of food. In a vacuum, perhaps, there might be some sort of claim here, and there are ordinary people who worked for AIG who were probably harmed when the state decided not to force companies like Goldman to take even a 1 percent haircut on their CDS contracts with the firm. But Hank Greenberg, the guy who started all of this mess by monkeying with shady reinsurance deals and signing off on the bank’s incredibly irresponsible bookmaking during the pre-crisis years, is not the guy to bring that claim. Even Ben Bernanke was disgusted by the very idea of bailing out AIG, rewarding it for the vast greed and stupidity it displayed during the Greenberg years. Bernanke said the AIG rescue was “the single one that makes me the angriest,” because the company had made “all kinds of unconscionable bets.” But it should also have made Bernanke sick to give companies like Goldman and Citigroup 100 cents on the dollar for laying bets with AIG. There are some who have argued that the government was right to make all of AIG’s counterparties whole, because it upheld the sanctity of contracts or some such nonsense. This is bullshit, of course. **When you enter into any deal with anyone, you have to weigh your risks, including the risk that your bookie, AIG, might implode thanks to its bad accounting and moronic management.** Read more: [http://www.rollingstone.com/politics/blogs/taibblog/hank-greenberg-should-be-shot-into-space-for-suing-the-government-over-the-aig-bailout-20130109#ixzz2IFPS2hBg](http://www.rollingstone.com/politics/blogs/taibblog/hank-greenberg-should-be-shot-into-space-for-suing-the-government-over-the-aig-bailout-20130109#ixzz2IFPS2hBg)]([http://www.rollingstone.com/politics/blogs/taibblog/hank-greenberg-should-be-shot-into-space-for-suing-the-government-over-the-aig-bailout-20130109](http://www.rollingstone.com/politics/blogs/taibblog/hank-greenberg-should-be-shot-into-space-for-suing-the-government-over-the-aig-bailout-20130109)) Follow us: @rollingstone on Twitter | RollingStone on Facebook ---
**Author:** ![Ann\_Hedonia](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ann_hedonia/32/319_2.png) [@Ann\_Hedonia](https://boards.straightdope.com/u/Ann_Hedonia)\ **Post date:** [January 17, 2013, 3:38pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/68 "2013-01-17T15:38:12Z")
See link below [http://www.rollingstone.com/politics/blogs/taibblog/hank-greenberg-should-be-shot-into-space-for-suing-the-government-over-the-aig-bailout-20130109](http://www.rollingstone.com/politics/blogs/taibblog/hank-greenberg-should-be-shot-into-space-for-suing-the-government-over-the-aig-bailout-20130109) Excerpt: BOLDING MINE Federal Judge Paul Engelmayer gave this dismissive description of Greenberg’s suit in a ruling late last year: To be sure, Starr’s Amended Complaint paints a portrait of government treachery worthy of an Oliver Stone movie. Starr claims that, as the global financial system teetered on the brink of collapse, FRBNY seized control of AIG. Then, Starr claims, FRBNY, in an act of Napoleonic plunder, stole AIG’s assets, re-distributing some to shore up other flagging financial institutions while keeping much of the residue for itself. **You know what’s funny about this? IT’S TRUE!** The Fed, the U.S. Government, and the less-completely-fucked Wall Street powers like Goldman and Barclays and Citigroup absolutely did conspire to seize AIG and then use a monstrous mixture of AIG’s assets and public money to keep themselves alive. In essence, AIG was the helpless fat guy in the lifeboat who got eaten when the rest of the survivors ran out of food. In a vacuum, perhaps, there might be some sort of claim here, and there are ordinary people who worked for AIG who were probably harmed when the state decided not to force companies like Goldman to take even a 1 percent haircut on their CDS contracts with the firm. But Hank Greenberg, the guy who started all of this mess by monkeying with shady reinsurance deals and signing off on the bank’s incredibly irresponsible bookmaking during the pre-crisis years, is not the guy to bring that claim. Even Ben Bernanke was disgusted by the very idea of bailing out AIG, rewarding it for the vast greed and stupidity it displayed during the Greenberg years. Bernanke said the AIG rescue was “the single one that makes me the angriest,” because the company had made “all kinds of unconscionable bets.” But it should also have made Bernanke sick to give companies like Goldman and Citigroup 100 cents on the dollar for laying bets with AIG. There are some who have argued that the government was right to make all of AIG’s counterparties whole, because it upheld the sanctity of contracts or some such nonsense. This is bullshit, of course. **When you enter into any deal with anyone, you have to weigh your risks, including the risk that your bookie, AIG, might implode thanks to its bad accounting and moronic management.** Read more: [http://www.rollingstone.com/politics/blogs/taibblog/hank-greenberg-should-be-shot-into-space-for-suing-the-government-over-the-aig-bailout-20130109#ixzz2IFPS2hBg](http://www.rollingstone.com/politics/blogs/taibblog/hank-greenberg-should-be-shot-into-space-for-suing-the-government-over-the-aig-bailout-20130109#ixzz2IFPS2hBg) Follow us: @rollingstone on Twitter | RollingStone on Facebook ---
**Author:** ![Ann\_Hedonia](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ann_hedonia/32/319_2.png) [@Ann\_Hedonia](https://boards.straightdope.com/u/Ann_Hedonia)\ **Post date:** [January 17, 2013, 3:39pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/69 "2013-01-17T15:39:19Z")
Hey mods Please remove post 67, I thought I was editing to fix a bad link but it got reposted ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [January 17, 2013, 4:08pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/70 "2013-01-17T16:08:21Z")
> [@Esox\_Lucius](#): > > Actually, it has been rejected by one court but not another. Did the other court reject the lawsuit on the grounds that there was no evidence for his allegations? That’s what we’re discussing. There are also other grounds that might lead to a dismissal. In the case that was not dismissed the government argued that even if Greenberg’s facts were correct, he had no legal case, and it’s possible the other judge ruled along those lines. > [@Damuri\_Ajashi](#): > > I have not heard anything to indicate that there was any interested parties between the Lehman crash and the bailout. What’s “I have not heard anything”, and why only “between the Lehman crash …”? > [@](#): > > How many entities do you think have $100 billion to risk on one investment? I don’t know. But again, it could have been less, and it could have been more than one entity. > [@](#): > > You mean the way they were letting foreign ayuto companies buy our auto companies (and putting some money into the deal to sweeten the pot)? Or the way they were trying to sell Lehman to UK banks? > > Maybe I’ don’t understand what youa re trying to say Maybe there’s some difference. Maybe there isn’t. This seems like something that would be settled at a trial. Nobody is going to take Greenberg’s word on this. > [@](#): > > I agree with this but it would STILL have left the old AIG owners with worthless stock. Why? If the counterparties agreed to reduce the obligations enough, AIG would have remained solvent, and when the stock recovered, the old shareholders would have owned 100% of it instead of 20%. > [@](#): > > They couldn’t pay all their obligations when due. Understood. But I find the argument that “we were harmed by being prevented from underpaying obligations that we promised to pay” distasteful. YMMV. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [January 17, 2013, 9:32pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/71 "2013-01-17T21:32:04Z")
> [@Fotheringay-Phipps](#): > > What’s “I have not heard anything”, and why only “between the Lehman crash …”? When you claim that there were white knights ready to sink 100 billion dollars into your failing financial institution then I think you need to tell me who that hypothetical white knight is. My understanding is that the Lehman crash (and its effects) is what made AIG insolvent. Without that, they could have muddled through. > [@](#): > > Maybe there’s some difference. Maybe there isn’t. This seems like something that would be settled at a trial. Nobody is going to take Greenberg’s word on this. Unless he comes up with the name of a potential investor that was ready willing and able to bail out AIG if the US government hadn’t chased them away, he hasn’t made a prima facie case and doesn’t deserve to be heard. > [@](#): > > Why? If the counterparties agreed to reduce the obligations enough, AIG would have remained solvent, and when the stock recovered, the old shareholders would have owned 100% of it instead of 20%. That’s not how bankruptcies work. If ther aren’t enough assets to repay the creditors, then then the creditors become majority shreholders almost every time (and frequently the shareholders get wiped out altogether). The shareholders were likely to end up with nothing if the government bailout fell through. > [@](#): > > Understood. But I find the argument that “we were harmed by being prevented from underpaying obligations that we promised to pay” distasteful. YMMV. Its a matter of distasteful or not distasteful. You can’t force a creditor to take one penny less than they are owed while leaving the shareholders with one penny. Creditors frequently allow the shareholders to keep some value but its mostly a nuisance amount that is used to shut up the shareholders so the creditors can figure out how to carve up the company. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [January 17, 2013, 10:06pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/72 "2013-01-17T22:06:17Z")
> [@Damuri\_Ajashi](#): > > When you claim that there were white knights ready to sink 100 billion dollars into your failing financial institution then I think you need to tell me who that hypothetical white knight is. I am not making that claim, so I don’t need to show anything. Hank Greenberg is making that claim, and he will need to prove this in court during the trial. My point is that the mere fact that you, Damuri Ajashi, are unaware at this pre-trial stage of what the name of the hypothetical white knight is is not any indication that there wasn’t any such white knight. > [@](#): > > My understanding is that the Lehman crash (and its effects) is what made AIG insolvent. Without that, they could have muddled through. The Lehman crash was the coup de grace but AIG was in trouble and scrambling even before that. Lehman filed for BK on 9/15. Greenberg’s filing says that the efforts to secure foreign funding were on 9/13-9/14. > [@](#): > > Unless he comes up with the name of a potential investor that was ready willing and able to bail out AIG if the US government hadn’t chased them away, he hasn’t made a prima facie case and doesn’t deserve to be heard. I don’t know if that’s accurate. But if it is, then he presumably did name someone, in filings to the court. Greenberg’s lawyer is one of the leading lawyers in the country, and he presumably knows what the legal requirements are. And in any event, the claim was not rejected, by one judge at least. > [@](#): > > That’s not how bankruptcies work. If ther aren’t enough assets to repay the creditors, then then the creditors become majority shreholders almost every time (and frequently the shareholders get wiped out altogether). The shareholders were likely to end up with nothing if the government bailout fell through. Assuming they went BK. The question here is if the creditors accepting a haircut would have helped avoid BK (possibly in conjunction with a smaller bailout by foreign investors). > [@](#): > > Its a matter of distasteful or not distasteful. You can’t force a creditor to take one penny less than they are owed while leaving the shareholders with one penny. Creditors frequently allow the shareholders to keep some value but its mostly a nuisance amount that is used to shut up the shareholders so the creditors can figure out how to carve up the company. I agree with all this. I’m not sure what you are responding to. In case I wasn’t clear enough, my point was: part of Greenberg’s claim is that “AIG signed on to pay the creditors X but they could have forced the creditors to accept less than X by threatening bankruptcy. The government prevented AIG from doing this, and thereby harmed AIG”. I find this aspect of Greenberg’s argument distasteful, as I find distasteful the idea that you are being harmed by being prevented from paying people less than you owe them. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [January 18, 2013, 2:09am UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/73 "2013-01-18T02:09:59Z")
> [@Fotheringay-Phipps](#): > > I am not making that claim, so I don’t need to show anything. Hank Greenberg is making that claim, and he will need to prove this in court during the trial. Oh I didn’t mean you personally. I should have said, when one makes a claim that… but it sounded too grey poupon ---
**Author:** ![JohnT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/johnt/32/15048_2.png) [@JohnT](https://boards.straightdope.com/u/JohnT)\ **Post date:** [January 18, 2013, 3:46am UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/74 "2013-01-18T03:46:30Z")
It is highly doubtful that AIG could have made it regardless of whether or not LB went bankrupt. On 9/15/2008 AIG had $9 billion in cash and top executives realized that it would not last the week with all the collateral calls being made on their CDS’s. In addition, the company’s credit rating was going to be lowered on the 17th (Wednesday), which would have put into effect even more collateral calls, as well as exercising a number of covenants in their obligations that would have resulted in billions more immediately going out the window. Also, they could not roll their commercial paper. This alone made AIG repurchase the paper to the tune of $1.2+ billion on 9/12/2008 alone. Lastly, the downgrading of their credit rating would have caused billions of dollars of AIG stock, bonds, etc to have been placed on the market as many pension plans (CALPERS for one) have restrictions on their ability to invest based upon credit rating - once it goes below a certain level, the plans have no choice but to divest themselves of those assets. Cite: FCIC report, page 344-350. > **[GPO-FCIC.pdf](https://www.govinfo.gov/content/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf)** > > 5.34 MB ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [September 29, 2014, 8:16pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/77 "2014-09-29T20:16:58Z")
From the NY Times: [Court Casts a New Light on a Bailout Court Casts a New Light on a Bailout](http://www.nytimes.com/2014/09/28/business/court-casts-a-new-light-on-a-bailout.html?partner=rss&emc=rss) > [@](#): > > It may sound outrageous to argue that the government should pay $40 billion because it offered $182 billion in assistance to a company on the precipice. Shouldn’t the shareholders be grateful? > > But the A.I.G. deal was, fundamentally, a rescue of A.I.G.’s trading partners. Those partners included the big banks whose toxic mortgage securities had brought on the financial crisis. The insurer had guaranteed the securities against default. > > Starr’s argument is most compelling when it details the confiscatory aspects of A.I.G.’s bailout and compares it with the easy-money programs bestowed on banks. > [@](#): > > Shedding sunlight on this transaction will be a good thing; from the moment the New York Fed orchestrated the A.I.G. deal, the government has worked hard to keep its full picture from coming into view. > [@](#): > > Some segments of the depositions in the Starr case certainly support the notion that the A.I.G. deal was punitive. In one interview, Thomas C. Baxter Jr., general counsel at the New York Fed, said the interest rate extracted from A.I.G. was “loan sharky.” In another, Mr. Paulson acknowledged that the federal aid given to Citigroup posed greater risks to taxpayers than the A.I.G. loan. Yet, he said, Citigroup received far more favorable terms from the government. > > It is striking to compare the A.I.G. transaction with the federal assistance provided to the banks. Too striking, perhaps — the government asked to exclude from the trial “testimony and documents offered to show that other financial institutions received government assistance on terms different from A.I.G.” Judge Wheeler indicated that he was not granting that request. > [@](#): > > I am not arguing that A.I.G. was an innocent in the economic debacle of 2008. But unlike its trading partners, it neither created garbage mortgage securities nor peddled them to unsuspecting investors. Its error — a whopper for sure — was not recognizing that it was the patsy at the poker table when it insured those troubled securities. Which brings us back to Judge Wheeler’s question: Why did the government do what it did in the A.I.G. deal? > > An answer emerges from the material presented by Starr. Perhaps A.I.G. was treated differently because the government saw an opportunity in the insurer’s liquidity crisis: It could become an enormous taxpayer-funded piggy bank from which the government could funnel billions to a throng of teetering banks. Remember, taxpayers were growing increasingly outraged by bank rescues in fall 2008. So claiming to bail out a rogue insurer while quietly rescuing Wall Street allowed the government to channel that anger toward A.I.G. and away from the deal’s real beneficiaries. > > Starr may not prevail, but it has trained the spotlight on the government’s dealings with A.I.G. in the crisis. That alone is a public service. It would seem, in the opinion of this reporter at least, that emerging facts tend to support the general tenor of Greenberg’s accusations about the nature of the bailout (though he does not address the crucial issue of whether there were willing private investors who were deterred by the government). Whether that gives him enough legal grounds to prevail is another question. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [September 30, 2014, 1:31am UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/78 "2014-09-30T01:31:50Z")
> [@Fotheringay-Phipps](#): > > From the NY Times: [Court Casts a New Light on a Bailout Court Casts a New Light on a Bailout](http://www.nytimes.com/2014/09/28/business/court-casts-a-new-light-on-a-bailout.html?partner=rss&emc=rss)It would seem, in the opinion of this reporter at least, that emerging facts tend to support the general tenor of Greenberg’s accusations about the nature of the bailout (though he does not address the crucial issue of whether there were willing private investors who were deterred by the government). > > Whether that gives him enough legal grounds to prevail is another question. Thats all very interesting but the question isn’t whether the AIG bailout was more or less generous than other bailouts. The question is whether the AIG bailout was better or worse for the shareholders than bankruptcy. There is no chance that the shareholders would have kept 20% equity in a bankruptcy. Outfits like Soc Gen, GS and DB would have ended up with the equity and the shareholders would have gotten some token amount shut them up. And there were no ready willing and able private investors. You have to be able to name at least one of them for the claim to be believable. ---
**Author:** ![BrightNShiny](https://avatars.discourse-cdn.com/v4/letter/b/7bcc69/32.png) [@BrightNShiny](https://boards.straightdope.com/u/BrightNShiny)\ **Post date:** [September 30, 2014, 1:43am UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/79 "2014-09-30T01:43:51Z")
I vaguely recall that Citibank tried to get one of the sovereign funds to bail it out during the height of the crisis (maybe the Saudis?) and they were told to take a hike. And Citibank was in a much better position than AIG. I don’t think that notion that AIG could have found investors is credible. Now that I think about it though, AIG isn’t the type of institution that the US government had the power to seize in 2008, is it? If the AIG board had told the US government they didn’t want their involvement, then there’s not much the US gov. could have done about it? Or am I incorrect? Anyone know? ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [September 30, 2014, 1:35pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/80 "2014-09-30T13:35:00Z")
> [@BrightNShiny](#): > > I vaguely recall that Citibank tried to get one of the sovereign funds to bail it out during the height of the crisis (maybe the Saudis?) and they were told to take a hike. And Citibank was in a much better position than AIG. I don’t think that notion that AIG could have found investors is credible. That seems to be contradicted by the article which said: _“In another, Mr. Paulson acknowledged that the federal aid given to Citigroup posed greater risks to taxpayers than the A.I.G. loan. Yet, he said, Citigroup received far more favorable terms from the government.”_ So apparently the assessment of Hank Paulson was that Citigroup was in a worse position, or at any rate was a riskier investment. > [@](#): > > Now that I think about it though, AIG isn’t the type of institution that the US government had the power to seize in 2008, is it? If the AIG board had told the US government they didn’t want their involvement, then there’s not much the US gov. could have done about it? Or am I incorrect? Anyone know? I don’t see the relevance of this - we’re discussing the possibility that the US government deterred outside investors, not that they seized AIG. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [October 6, 2014, 7:43pm UTC](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554/81 "2014-10-06T19:43:36Z")
A couple of articles, now that the trial is underway: > **[AIG Bailout Trial Bombshell I: Paulson Rejected Chinese Offer to Invest "More...](https://www.nakedcapitalism.com/2014/10/aig-bailout-trial-bombshell-paulson-rejected-chinese-offer.html)** > > Hank Greenberg's lawyers present surprisingly compelling evidence that the AIG bailout didn't need to be a $180+ billion affair. > **[AIG Bailout Trial Bombshell II: Fed and Treasury Cornered AIG's Board into...](https://www.nakedcapitalism.com/2014/10/aig-bailout-trial-bombshell-ii-fed-treasury-cornered-board-taking-legally-dubious-bailout.html)** > > A filing in the AIG bailout trial, embedded in this post, presents a surprisingly compelling argument that the Feds used AIG to rescue banks So the sovereign funds have been identified as Chinese and Singapore, and allegedly a group of Middle Eastern investors wanted in as well. Paulson, for his pat, is [claiming](http://www.bloomberg.com/news/2014-10-06/paulson-discussed-u-s-financial-bailout-with-china.html) that he had had some discussions with the Chinese but that he “didn’t think” they would be interested without a US government guarantee. At the same time, it appears that Paulson and other relevant officials are acknowleging that their actions in making AIG pay 100% to all counterparties was done in the broader interests of propping up the US banking system. So they had - at a minimum - an incentive to discourage private investors and to downplay the feasibility of it now. It will be interesting to see how it continues to play out. ISTM that the betting is still against Greenberg, but the consensus seems to be that he’s come a lot further - and uncovered more in support of his position - than had been expected at the outset. [Previous page](https://boards.straightdope.com/t/aig-shareholders-suing-the-government-over-the-aig-bailout/646554.md?page=3)