AIG Is Thinking About Suing the Government for Bailing It Out

[garbon]

http://news.yahoo.com/aig-thinking-suing-government-bailing-041150357--finance.html

It's been almost five years since AIG's stock dropped 60 percent in a day leaving the company doomed to failure, when Uncle Sam swooped in with $182 billion to rescue it. But AIG must have a short memory, because on Monday night news emerged that the insurance company is actually thinking about suing the U.S. government over the bailout that saved it. The board will discuss the idea with shareholders at a meeting on Wednesday.

It's not so much that AIG's mad the government bailed them out. (They wouldn't be around to be mad if it hadn't.) They just wish they'd done it a little bit differently. "The lawsuit does not argue that government help was not needed," The New York Times reports. "It contends that the onerous nature of the rescue -- the taking of what became a 92 percent stake in the company, the deal's high interest rates and the funneling of billions to the insurer's Wall Street clients -- deprived shareholders of tens of billions of dollars and violated the Fifth Amendment, which prohibits the taking of private property for 'public use, without just compensation.'" Does that kind of bad attitude count as "looking the gift horse in the mouth" or "biting the hand that feeds you?" Or both?

The timing of AIG's potential lawsuit is a little bit curious. The company just finished paying the government back about a month ago, when the Treasury Department announced the sale of its last batch of AIG shares -- at a profit nonetheless. Then a week ago, AIG launched a rah-rah ad campaign with the tagline "Thank You America" to show just how much it appreciates taxpayers saving its butt.

But that's not the message that suing the government for putting up the cash sends, is it? A professor of law and finance at the University of San Diego told The Times, "On the one hand, from a corporate governance perspective, it appears they're being extra cautious and careful. On the other hand, it's a slap in the face to the taxpayer and the government."

[Neil]

Did you honestly expect anything else?

[ulmont]

Nail 'em up!

[Barrister]

This is well outside my area of professional competence to comment on, but there was something very unseemly about all of the '08 bailouts.  It was done with little legislative oversight, private entities ultimately profited greatly.

I know the argument was it had to be done quickly in order to save the economy, but it never felt very good at the time.

[Viking]

Are they arguing

1) We were denied the opportunity to say no and go bankrupt

or

2) We were too stupid to realize this was a bad offer

or

3) The terms being imposed today were not the terms agreed when the gubmint had us by the short and curlies over a barrel

I'm confused.

[Barrister]

Why not read the article?

The potential claim is that, in rescuing AIG, the government took monies and profits from AIG shareholders, and funneled them to other, private interests.

[Admiral Yi]

Why not read the article?

The potential claim is that, in rescuing AIG, the government took monies and profits from AIG shareholders, and funneled them to other, private interests.

That doesn't answer his question.

[Viking]

Why not read the article?

The potential claim is that, in rescuing AIG, the government took monies and profits from AIG shareholders, and funneled them to other, private interests.

Because the article doesn't answer my question.

[Barrister]

Why not read the article?

The potential claim is that, in rescuing AIG, the government took monies and profits from AIG shareholders, and funneled them to other, private interests.

Because the article doesn't answer my question.

That's because none of your arguments quite apply.

To put it in the form of your arguments, it is

In being granted the rescue monies, the government illegally transferred private property from out taxpayers to other private interests.



Private companies are free to act as predatorily as they want (some exceptions, but still).  Government itself can drive as hard a bargain as they want, for their own benefit as well.  But what might be an abuse is, if while the government drives a hard bargain for itself, it also drives a hard bargain for another private industry.

Here's a vastly simplified version - AIG is offered a bailout, but one of the conditions of the bailout is that it has to sell certain assets to Bank XYZ at 50% their overall value.

[Admiral Yi]

Beeb, there's nothing in their about illegally funneling money to AIG clients.  AIG had sold a butthurtload of subprime CDS that were in the money after the crash.

Speculation being the soul of wit Puff, I'm going to speculate that AIG's management looked at the handsome profit Da Feds pocketed on the bailout and said to themselves hey maybe we can get a slice of that back just by asking.

[Viking]

Why not read the article?

The potential claim is that, in rescuing AIG, the government took monies and profits from AIG shareholders, and funneled them to other, private interests.

Because the article doesn't answer my question.

That's because none of your arguments quite apply.

To put it in the form of your arguments, it is

In being granted the rescue monies, the government illegally transferred private property from out taxpayers to other private interests.



Private companies are free to act as predatorily as they want (some exceptions, but still).  Government itself can drive as hard a bargain as they want, for their own benefit as well.  But what might be an abuse is, if while the government drives a hard bargain for itself, it also drives a hard bargain for another private industry.

Here's a vastly simplified version - AIG is offered a bailout, but one of the conditions of the bailout is that it has to sell certain assets to Bank XYZ at 50% their overall value.

So you are saying it is 1) AIG was denied the option of going bankrupt?

Re the bolded bit. I don't get that. How does the government driving a hard bargain for itself also drive a hard bargain for another private industry? The different insurance companies can get differentiated treatment like in the auto industry where Ford didn't get a total bailout like GM and maintained shareholder value.

I'm not making an argument here I don't understand the complaint by AIG. 

[KRonn]

Why not read the article?

The potential claim is that, in rescuing AIG, the government took monies and profits from AIG shareholders, and funneled them to other, private interests.

Yeah, that's what got my attention too, that made the lawsuit make a bit of sense.

[Martinus]

Where is Sulla when you need him?

[Malthus]

Are they arguing

1) We were denied the opportunity to say no and go bankrupt

or

2) We were too stupid to realize this was a bad offer

or

3) The terms being imposed today were not the terms agreed when the gubmint had us by the short and curlies over a barrel

I'm confused.

From the short article above, it seems they are in essence arguing #2 - and basically that the badness of the deal amounted to an expropriation.

Doesn't strike me as having much of a chance of success, but I hardly know the facts here.

[Viking]

Where is Sulla when you need him?

Presumably he's the guy organizing the bailout.

So far I see AIG and GM on the list of the proscribed.