Perhaps not. The point being it’s not “AIG” that’s suing the government. It’s the former CEO who, as far as I can tell, is widely regarded as a douche by people currently at AIG.
…wait…now I’m all confused.
Weren’t the federally-backed mortgages backing up the derivative financial instruments?
Go back. Someone explain it to me again.
ETA: Please.
The derivatives were not backed by anything other than the stability of the mortgages. They consist of pieces of individual mortgages bundled together in a way that was suppose to spread the risk. That only works if banks don’t make a lot of risky loans. Derivatives were used to back up risky loans. It was a house of cards waiting for a trigger and that was an unnatural rise in housing prices. That was a bubble made worse by an increase in new housing construction which created an excess of houses. Too many overpriced houses purchased by risky loans backed up by bundled versions of the same loans.
Yes, it was all backed by federal money but not in a planned way. Congress was warned of both the derivative problem as well as problems with Fannie Mae and bad mortgage practices. They created these institutions and then ignored the mess they created.
Do you have any cite that AIG wasn’t insolvent at the time? Its stock price had fallen 95% because AIG was not able to pays its obligations as they became due. Are you under the impression that the market would have just worked itself out?
As for ready willing and able lenders:
AIG drew down almost 125 Billion dollars before it made its turn around. Who do you think was “ready willing and able” to do that?
Ironically someone wins the pick six every so often despite the odds.
I keep confusing those two scumbags.
Yeah, he’s just wrong. AIG hand’t just contemplated filing bankruptcy, they had hired lawyers and drafted documents for the bankruptcy.
And AIG guarnateed the obligations of that one little subsidiary so its as if AIG had the problem at the parent level. But you are right, I should have said income statement not balance sheet. However, AIG was in no position to get full value for any of its assets (like insurance subsidiaries). It was likely balance sheet insolvent as well as cash flow insolvent (i.e. the shareholders would have gotten NOTHING and the unsecured creditors would have had to take some sort of haircut on their debt.)
You are correct.
Not really. There was never an auto bail out. It went into bankruptcy like it would have without public funds. what was bailed out with public funds were pensions. The pensions were the anchors dragging the company down. We aren’t getting that money back.
I have no idea who might have bailed out AIG. I’ve quoted earlier from the lawsuit in which the claim is that it was “sovereign wealth funds and other non-United States investors”. I have no idea if this is true, and this is obviously something that would have to be established with evidence at a trial, if it gets that far.
But your insistence that there were no potential investors has no basis.
And - again, as previously noted - the fact that the government actually made a profit on the investment lends support to the notion that there was profit to be made, in light of which there’s reason to believe that investors might have seen this profit potential. Especially if - as the lawsuit alleges - the government refused to drive a hard bargain with AIG’s counterparties due to concerns about the overall financial system, while outside investors would not have had similar constraints and might have made even more profit.
True. But if there are two strategies chosen in comparable situations and one is clearly successful and the other clearly unsuccesful, there’s a pretty heavy burden of proof on anyone trying to claim that the unsuccessful one was actually the better one and the actual results were just luck.
Well it was certainly an option. That doesn’t mean they weren’t also exploring other options.
But more important, the significance of Greenberg’s position at the time is something else. Most of the outrage over this lawsuit is because people are looking at this as a case of someone drowing in the water and then suing the lifeguard who saved his life. In the case of Greenberg, it’s more like someone who was having some difficulty but who adamantly refused the assistance of the lifeguard, and insisted that he would be OK without it, only to be overpowered and dragged to shore against his will. When this guy sues the lifeguard for injuring him in the process, it’s a different situation. Certainly if the lifeguard can show that this guy would have drowned, he will get off, but the guy deserves a day in court to try and make his case that he didn’t need the assistance.
He deserves a day in court only if there’s enough evidence to warrant it. So far, it seems to be Greenburg’s word against everyone else’s, including AIG itself. Without knowing the details, that hints at the lack of legitimacy of his claims.
I disagree. GM and Chrysler weren’t staring DIP financing and reorganization in the face, they were looking at liquidation. They needed the bailout to engage in a reorganization. A reorganization where the pensions and unions took more of a haircut that Goldman Sachs got on its obligations from AIG.
There was no white knight out there for the auto companies just like there wasn’t a white knight out there for AIG. GM and Chrysler wouldn’t have emerged leaner and less burdened with pensions. They simply would not have emerged.
Yeah, they’re making that shit up.
of course it does. The US was not the lender of first resort. They called every major investment bank in NYC to a meeting and flat out asked them to pony up money and they wouldn’t. They didn’t know anyone that would. They would have been willing to buy specific assets (especially at firesale prices but noone was going to provide AIG with unsecured loans and equity capital it needed.
Please see my comments about the lottery. The expected value of any deal was negative.
They were different situations. AIG is a financial institution. Financial institutions accrete value over time. AIG was facing a liquidity and solvency crisis, a liquidity crisis that called for over an investment of over $100 Billion. A managed reorganization where the credotirs took a haircut would have been a better outcome in the AIG case but noone else was ready willing and able to dump 100 billion into AIG.
They were ready to file the next day. They had no other outs.
He will get his opportunity but he will get shut down pretty quickly. He is trying to extract a settlement or something, his case has little to no merit.
This seems to be a misunderstanding of the legal system. You don’t produce evidence in order to get your day in court. You produce evidence on your day in court. Greenberg would not be producing his evidence at this point in the proceedings, even if he has some - and I assume he has something at least.
The fact that AIG itself is not participating is only an indication that they are not willing to put up with the backlash from the public and the government, and has little bearing on the validity of the lawsuit.
Again, these are empty assertions, and in addition your claim about “every investment bank in NYC” is irrelevant to Greenberg’s claim that AIG could have attracted foreign capital.
That was after the government had taken some of the actions that Greenberg is complaining about.
I can’t comment about the merits. But if it does have no merit I would speculate that he has no chance of forcing a settlement on the federal government, which has enormous legal resources and public opinion behind it. And that rather, the suit arises from the bitterness of Greenberg at being forced out of the company that he built and led for 4 decades and seeing it collapse under his successors.
But that’s if it has no merit. Again, I myself don’t know.
As is Greenberg’s assertion that all that capital was just begging to bail out AIG. Seriously, how many “sovereign wealth funds” are there that could liquidate and invest $100B on 24 hr notice (especially in the midst of a mini-crash)? Why not just ask them (it)?
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?
Seems to be a couple of misconceptions here.
- 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.
- 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.
He actually has a fourth claim, which is so silly journalists are apparently ignoring it - but oddly, it’s the one with the best chance of success. He has consistently asserted that shareholders would have done better if the company had gone bust and that the Treasury’s intervention was for the benefit of the economy and not AIG itself. That would be a breach of fiduciary duty. Of course, it’s hard to see how AIG would have done better in bankruptcy.
The really goofy part of the suit is that the Federal Reserve was actively politicking to engineer a private line of credit to do this. He’s going to have to assert some sort of bad faith on the part of the Fed/Treasury negotiators or something.
That’s exactly what did happen, though. S&P downgraded AIG on September 15, 2008, and AIG insiders were preparing for a bankruptcy filing the next day.
Presumably the idea is that the US government was reluctant to allow foreigners in.
The downgrade followed the failure of AIG to come up with a rescue plan. It’s not like AIG was downgaded out of the blue. See page 5 of the legal ruling which describes attempts to secure foreign funding “over the weekend of September 13-14”, prior to the downgrade.
[A similar situation played out when Enron collapsed. They were in trouble for a while, and were supposed to be bought out by another company called Dynegy, which got cold feet. Everyone knew that if the Dynegy buy-out fell through then Enron was gone. Which is how it happened. Dynegy backed out, Enron was immediately downgraded, and then immediately filed for bankruptcy.]
I’ve been a stockholder of a company that went bankrupt (reorganized). Getting nothing for my shares is probably not best for the shareholder.
I’m trying to figure out what this means (from F-P’s cite):
In a context where, on the same weekend, the Government was trying to broker an agreement between Lehman Brothers and Barclay’s bank (UK).
What the problem is, is that AIG is, primarily, firstmost and foremost, an insurance company, one that is regulated by all 50 states and the US Government. 28 states have laws that limit foreign ownership of insurance companies, with many (including Wyoming) forbidding it entirely. So there were no sovereign wealth funds that could have legally come to the aid of AIG, not in the time required. To do so would require over 1/2 of the states to change their own laws and regulations, an impossible task given that AIG didn’t have the liquidity to last the week of 9/8/2008.
Cite: http://www.gao.gov/assets/290/289957.pdf pp 20-21.
Too late to add:
Had AIG been able to access their insurance pool funds, their collapse would not have happened. Fortunately/unfortunately, however, they were prevented from doing so by state law in all 50 States.
I also would like to note that the eventual $ amount needed to bail out AIG topped $185 billion, a figure larger than the GDP’s of 74% of the worlds countries.
Looking at the above list, I really can’t see any country below #10 coming close to having the resources that the US Government needed to use in order to bail out AIG - and even #10 (Russia) would have had to spend 10% of its GDP to bail out AIG. How would that have even been politically feasible for any of the countries below, except the US?
(rank, country, GDP (2011, in millions))
1 United States 14,991,300
2 China 7,203,784
3 Japan 5,870,357
4 Germany 3,604,061
5 France 2,775,518
6 Brazil 2,476,651
7 United Kingdom 2,429,184
8 Italy 2,195,937
9 India 1,897,608
10 Russia 1,857,770
Is it possible that there could have been infusions that did not involve ownership stakes? Or that the specific division of AIG which needed the cash was not similarly regulated (or not doing business in those states)?
IIRC the government authorized up to $185B, but they ended up actually drawing a lot less.
Also, as noted, had they taken a harder line on their counterparties, they might have needed less yet.
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 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?
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.
Generally the way these things play out is that the debtor makes some sort of offer. Take X% or see what you can get in BK court. Then the creditor can decide whether to accept the offer or push for BK. Or make a counteroffer.
But in any event, the same argument you are making here is what Greenberg is arguing in court. He is saying that it’s not the problem of AIG shareholders if other counterparties were weakened by AIG driving a hard bargain. But it was a problem for the US government. So the government had an incentive to act against the interests of AIG shareholders in dealing with AIG’s counterparties.
[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.]
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).