Great news: Bailout recipient will continue to not sue US

posted at 8:01 am on January 10, 2013 by Ed Morrissey

Alternate subheadline: Comedians, bloggers hardest hit.  Come on, you know this would have been a cynic’s goldmine, right?  Alas, AIG has come to its senses:

The board of AIG decided Wednesday not to join a shareholder lawsuit against taxpayers which challenges the terms of the bailout that saved the insurer from bankruptcy in 2008.

The board did not detail the reasons for the decision, saying it will make that clear in court filings in the coming weeks. But when reports surfaced Tuesday that it was even considering joining the suit, it sparked widespread outrage against the company.

Gee, what might have been the reasons for AIG to take a pass?  How about the loss of all credibility in the marketplace, for one thing?  Recall that GM and Chrysler initially took a beating in public relations just for having accepted the bailouts; some people still swear they won’t buy from “Government Motors” any longer, or Chrysler Fiat either.  Imagine what the market blowback would have been from joining a lawsuit insisting that taxpayers didn’t save their bacon nicely enough.

That’s why the board also stipulated that no shareholder could join the lawsuit in AIG’s name, either:

AIG said that in addition to not joining the suit, it also will not permit the shareholders to pursue the claims against the government in AIG’s name.

Beyond the bad publicity and reek of ingratitude, CNN Money writes that AIG probably reached the conclusion that they couldn’t win the lawsuit, either.  After all, while AIG did get draconian terms from Uncle Sam, the board had the option to reject the deal and proceed into normal bankruptcy.  They voted to accept the deal offered.  Perhaps the shareholders might have a case against the AIG board for that decision, but it’s going to be tough to convince a judge that the government had the legal responsibility to take it easy on a company that went looking for a bailout, and then took it.

Many years ago, I read through a Ripley’s Believe It Or Not book, which included a case in the West where a man had been rescued by his neighbor from being lynched by his own rope.  The rescued man sued the neighbor for damaging the rope, Ripley’s claimed, and the ingratitude was staggering.  I’d like to think he lost the case, and I’d like to think the same will happen with this shareholder lawsuit, too.


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Judge Napolitano thought they had a legitimate case.

Notorious GOP on January 10, 2013 at 8:05 AM

Big of ‘em.

Bobbi on January 10, 2013 at 8:06 AM

Come on, you know this would have been a cynic’s goldmine, right?

I think there might have been violence. Not from ours, but theirs, over there in the swamp. The hippies would have lost it, and it’s hard to properly police things when pretty much everyone (cops included) wouldn’t mind if this and that caught on fire, even if the good guys would have never thrown the bottle.

This is basically a walking insult to injury cliche. Nothing like an injured and insulted anarchist at an Occupy AIG rally.

Axe on January 10, 2013 at 8:11 AM

which just means they’ll make up the margin where?……..

PappyD61 on January 10, 2013 at 8:11 AM

*For throwing bottles.

Axe on January 10, 2013 at 8:11 AM

Big of ‘em.

Bobbi on January 10, 2013 at 8:06 AM

Too big to fail.

Electrongod on January 10, 2013 at 8:21 AM

AIG suing the government for access to tax money is like a right hand suing the left hand for exclusive access to the zipper’s content.

Archivarix on January 10, 2013 at 8:41 AM

It opened my eyes to read the WSJ editorial, behind the firewall here.

The suit is about the extent of the right of government to step in and take over a functioning company.

The former CEO argues that the government should have let AIG proceed into bankruptcy, because it had assets.

Drained Brain on January 10, 2013 at 9:03 AM

It’s too bad the suit didn’t go forward as it would have shed light on the fact that the AIG bailout was a bailout of the likes of Goldman Sachs and other too big to fail counter parties.

voiceofreason on January 10, 2013 at 9:23 AM

The former CEO argues that the government should have let AIG proceed into bankruptcy, because it had assets.

Drained Brain on January 10, 2013 at 9:03 AM

Seeking what? (Can’t read it.)

Axe on January 10, 2013 at 9:39 AM

Seeking what? (Can’t read it.)

Axe on January 10, 2013 at 9:39 AM

I’m not currently a paid subscriber so I can’t open it again. I did find – and it takes a lot of searching – one other analysis on Fox Business here that explains the “other side” to some extent. As soon as I read that Dems have put great pressure on the AIG Board I’m suspicious.

[excerpts]

Democrat members of Congress including Peter Welch and Michael Capuano are pressuring AIG’s board, warning it not to even think about joining the suit.

——

The Starr International lawsuit also brings up once again the public’s right to know what was done with government funds and AIG’s assets. It’s about the public’s right to know why suddenly Wall Street firms like Goldman were too big to fail. It’s about the government’s sudden decision in declaring there was systemic risk to the U.S. economy in not fully remunerating 100% Goldman, Merrill Lynch and foreign banks in their rotten derivatives deals.

And the lawsuit raises again the public’s right to know how Goldman and other Wall Street banks, as well as the French government, were pressuring the U.S. government into getting 100% of their money back, despite the fact that rotten subprime deals sat at the heart of these trades, caveat emptor Goldman, Societe Generale and Calyon.

Drained Brain on January 10, 2013 at 9:51 AM

This is from almost a month ago, in Businessweek:

Charlie Rose Talks to AIG Chief Robert Benmosche

Benmosche is the current CEO, who took over from Hank Greenberg, the latter who is behind the law suit. You can read that Benmosche’s attitude is only one of deep gratitude.

Shy Guy on January 10, 2013 at 9:57 AM

Drained Brain on January 10, 2013 at 9:51 AM

It’s just . . . regardless of the argument, if at the bottom of the complaint is cash, it sort of loops back to righteous indignation. :) No getting around it. That’s what I was wondering about. (Even if the argument is nicely conservative and sympathetic, etc.)

Thanks for taking a minute to pull something up, by the way. I didn’t mean to put you out.

Axe on January 10, 2013 at 9:59 AM

Yeah, this:

The company has since come under withering criticism for considering joining the $25 billion lawsuit.

http://www.foxbusiness.com/industries/2013/01/09/theres-more-to-greenbergs-aig-government-lawsuit/#ixzz2HaL4JbAP

And the jokes and bottles would still fly.

Axe on January 10, 2013 at 10:02 AM

Thanks for taking a minute to pull something up, by the way. I didn’t mean to put you out.

Axe on January 10, 2013 at 9:59 AM

No worries. I did manage to sneak behind the WSJ firewall again and will throw in a couple of excerpts from their editorial below. The editorial argues that every “taxpayer and shareholder should be rooting for this case to go to trial” to determine under what circumstances the government has the right to take over a private business.

Greenberg’s company, Starr International, a major shareholder in AIG,

“cites the Fifth Amendment, which holds that private property shall not “be taken for public use, without just compensation.” The original rescue loans from the government required AIG to pay a 14.5% interest rate and were fully secured by AIG assets. So when the government also demanded control of 79.9% of AIG’s equity, where was the compensation?

Greenberg has consistently argued that the company would have been better off in Chapter 11. He argues that since AIG’s assets were greater than its liabilities, there was an opportunity to preserve some shareholder value. To be sure this is a tough argument to make given how difficult it would be to maintain the reputation of a financial firm operating in bankruptcy. But let him make it.

Drained Brain on January 10, 2013 at 10:11 AM

“Too big to fail” just means that when the failure comes it will be all the more devastating.

ss396 on January 10, 2013 at 10:13 AM

…all these people probably come from Ivy League business schools!

KOOLAID2 on January 10, 2013 at 10:15 AM

Gee, what might have been the reasons for AIG to take a pass? How about the loss of all credibility in the marketplace, for one thing? Recall that GM and Chrysler initially took a beating in public relations just for having accepted the bailouts; some people still swear they won’t buy from “Government Motors” any longer, or Chrysler Fiat either. Imagine what the market blowback would have been from joining a lawsuit insisting that taxpayers didn’t save their bacon nicely enough.

Okay fine, it hurt their reputation with consumers, but have you forgotten that GM bondholders and Chrysler dealers were royally screwed by BO?!

Sure, under normal circumstances with an administration free of corruption, it would be laughable for someone who got a bailout to sue the feds, but this is the BO administration we’re talking about. I don’t recall the circumstances of AIG’s collapse but considering the past thuggery of the Obama administration regarding bailouts, I am inclined to sympathize with them. If I have to choose between Hank Greenberg and Barack Obama and his team of Chicago gangsters, I’m going with Greenberg any day. BO screwed GM senior bondholders via his “managed bankruptcy” and brass-knuckled companies into taking bailouts they didn’t want. It’s likely AIG was going to be screwed no matter which option they chose -if they even had a choice. Team BO (and his union pals, but I digress) do extortion very well.

Buy Danish on January 10, 2013 at 11:44 AM

Extortion+AIG – it’s all coming back to me now…

Buy Danish on January 10, 2013 at 12:08 PM

AIG’s crisis was artificially created by federal government by forcing lenders into subprime mortgages, not requiring disclosure of subprimes in mortgage bundled securities, and the insane (if well-intended) “mark to market” rule of Dodd-Frank.

They were intimidated by threats of retaliation from the government. It’s chilling.

The AIG “bailout” was in essence a massive confiscation of value by the federal government without due process.

Adjoran on January 10, 2013 at 3:15 PM

To be fair, most banks were basically forced into joining the bailout or face stiff penalties.

TheBlueSite on January 10, 2013 at 5:32 PM