AIG Shareholders Suing the Government Over the AIG Bailout

Great Debates
61

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.

62

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. :wink:

63

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.

64

Motion to dismiss.

I have not heard anything to indicate that there was any interested parties between the Lehman crash and the bailout.

How many entities do you think have $100 billion to risk on one investment?

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

I agree with this but it would STILL have left the old AIG owners with worthless stock.

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 had guaranteed the liabilities of the FP group, they couldn’t get away from it.

They couldn’t pay all their obligations when due.

Valuation of any assets at that time were not good.

In a situation like that, the state insurance commissions would probably seize the assets and operations.

65

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.

66

Actually, it has been rejected by one court but not another. From your original link:

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.

67

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)
Follow us: @rollingstone on Twitter | RollingStone on Facebook

68

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
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
Follow us: @rollingstone on Twitter | RollingStone on Facebook

69

Hey mods

Please remove post 67, I thought I was editing to fix a bad link but it got reposted

70

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.

What’s “I have not heard anything”, and why only “between the Lehman crash …”?

I don’t know. But again, it could have been less, and it could have been more than one entity.

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.

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%.

Understood. But I find the argument that “we were harmed by being prevented from underpaying obligations that we promised to pay” distasteful. YMMV.

71

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.

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.

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.

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.

72

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.

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.

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.

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).

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.

73

Oh I didn’t mean you personally. I should have said, when one makes a claim that… but it sounded too grey poupon

74

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.

77

From the NY Times: Court Casts a New Light on a Bailout Court Casts a New Light on a Bailout

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.

78

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.

79

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?

80

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.

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.

81

A couple of articles, now that the trial is underway:

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 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.