AIG: Today it’s “Thank you, America.” Will it be “Screw you, America” tomorrow?

ScrewThis just in from NYT’s DealBook:

Rescued by a Bailout, A.I.G. May Sue Its Savior

The board of A.I.G. will meet on Wednesday to consider joining a $25 billion shareholder lawsuit against the government, court records show. The lawsuit does not argue that government help was not needed. 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.”

By all means, give AIG a fair shake and read the NYT piece in its entirety. The board is indeed stuck between a rock and a hard place. If it doesn’t join the suit, it may face additional suits from shareholders for abstaining. If it does join the lawsuit, there will be plenty of pissed off Americans.

Here’s the thing going unmentioned by AIG at this juncture: the board could very well make the case that abstention is ultimately in the best interest of shareholder value. Heads may roll, but the case could be made. As noted by the article, it is currently unclear which direction the board will take. They will probably decide by the end of January. If they do plan to make the case for abstention, playing their cards close to the vest for now is a savvy move, perhaps, but nevertheless exposes the government to substantial legal costs in the meantime. Heads they win. Tails we lose.

The AIG bailout, and the Wall Street bailout in general, has already cost us too much. Should AIG join the suit and effectively tell the American public, “screw you,” they will have taken us from Too Big to Fail to Too Big to Jail to Too Big to Bail.

And what are we going to do about it?

[insert raucous, maniacal laughter here]

Not a damned thing, unless, that is, we think we can persuade the major shareholders that they should just accept the sentiments of the Federal Reserve Bank of New York and Judge Paul A. Engelmayer with grace and sit the fuck back down. Quietly. And gratefully.

The Treasury Department declined to comment. A spokesman for the Federal Reserve Bank of New York, Jack Gutt, said, “There is no merit to these allegations.” He noted that “A.I.G.’s board of directors had an alternative choice to borrowing from the Federal Reserve, and that choice was bankruptcy.”

A federal judge in Manhattan agreed, dismissing the case in November. In an 89-page opinion, Judge Paul A. Engelmayer wrote that while Starr’s complaint “paints a portrait of government treachery worthy of an Oliver Stone movie,” the company “voluntarily accepted the hard terms offered by the one and only rescuer that stood between it and imminent bankruptcy.”

[insert raucous, maniacal laughter here]

My prediction? We’ll take it up the collective pooper yet again. Maybe next time we’ll elect a president, hell, we’ll have a choice of candidates who won’t be hellbent on shoveling our money straight into the voracious maws of these modern day Gilded Agers?

[insert raucous, maniacal laughter here]

Who am I kidding? Keep it up, America. Great job.

Talk about your unintended consequences.


Image credit: Photo of screw by LawPrieR, licensed under Creative Commons.

2 replies »

  1. no good deed……

    the auto industry has not been conspicuous with gratitude either.

    i am very wary of govt intervention (in company failures, in foreign wars, etc,) but in this case i do think it was warranted. although regulation of financial instruments before the fact would have been a much better way to go.

    • I’ve had my doubts since the bailout process started. Granted, without the bailouts the pain would have been immediate, substantial, and widespread. On the other hand, I was of the mind back then that what our economy needed prior to any kind of genuine recovery was some kind of catastrophic reset. In spirit, the idea of the bailouts may have been a noble one, but in practice it keeps turning out to be anything but. Matt Taibbi just recently did an excellent piece that I find a bit vindicating on that front.

      Maybe bailouts were necessary, but in any event they were horribly executed, imho.