Maxine in the News
AIG Backs Off Suit Over Bailout After Public Outrage
Eric Linton, International Business Times
Facing outrage from all quarters, AIG Inc. said Wednesday it would not sue the U.S. government over terms of its multi-billion dollar bailout.
Insurer American International Group (NYSE: AIG) had been weighing whether to join a lawsuit filed by its former Chief Executive Maurice "Hank" Greenberg and his company Starr International, which owned 12 percent of AIG before its $182 billion rescue that started in 2008.
Greenberg claims the rescue was unfair to shareholders and that the Federal Reserve Bank of New York charged an excessive interest rate on its initial loan. He is seeking billions of dollars in damages, Reuters reports.
AIG said its board had carried out its legal and fiduciary duty to consider joining Greenberg's lawsuit before deciding not to. Greenberg has a case pending in the Court of Federal Claims in Washington, D.C., and is also appealing the dismissal of a lawsuit in federal court in New York.
AIG's Chief Executive Robert Benmosche told CNBC that ultimately the public had to trust the company.
"It is not acceptable socially for AIG to have taken this money and to think we can go back and sue the government," he said.
AIG said it would not pursue Starr's claims nor would it let Starr pursue them on its behalf, setting the stage for a fresh legal fight between Greenberg and his old company.
The idea that AIG might sue the government struck a raw nerve with Congress and the public, which took to the Internet to vent its anger at what it viewed as the company's audacity. The volume of AIG mentions on Twitter rose more than 50-fold on Tuesday, according to Topsy Analytics.
Starr's attorney, power lawyer David Boies, said in a statement that AIG's effort to block Starr from pursuing claims was contrary to shareholders' interests.
"Whether or not the AIG Board will be successful in blocking Starr's efforts to recover damages for their shareholders will ultimately be decided by the court," Boies said, according to Reuters.
At Wednesday’s meeting AIG had three options: Take over the claim and prosecute on its own; permit Starr to continue to pursue the lawsuit; or try to prevent Starr from prosecuting the claims. Now, if Starr gets a favorable settlement, AIG will not get any of money recovered.
The lawsuit does not deny that the company needed government’s help, as AIG was close to tanking the financial world when Lehman Bros. Holdings Inc. (NYSE: LEH) declared bankruptcy in September 2008. AIG was in a bind and in need of tens of billions of dollars of collateral it couldn’t immediately provide. What Greenberg is challenging is the nature of the bailout – the government's “wrongful” taking of approximately an 80 percent stake in the company “without just compensation, in violation of the United States Constitution.”
Before AIG backed off Wednesday, it was scorned from all sides.
Austan Goolsbee, economist and former chairman of the Council of Economic Advisers, tweeted, “Dear AIG, Hi, I’m one of the 300m Americans whose $ saved you. I think I speak for all of us (incl your moms) when I say GO SCREW YOURSELVES”
Robert Reich, former secretary of labor, tweeted, “AIG, bailed out by U.S., may now sue U.S., claiming bailout terms were too harsh. We should counter-sue for stupidity.”
David Axelrod, a former top political adviser to President Barack Obama, tweeted, “Definition of Chutzpah: AIG, saved by American taxpayers, contemplating suit against U.S. over conditions
Sen. Elizabeth Warren, D-Mass., wrote: “AIG’s reckless bets nearly crashed our entire economy. Taxpayers across this country saved AIG from ruin, and it would be outrageous for this company to turn around and sue the federal government because they think the deal wasn’t generous enough. Even today, the government provides an ongoing, stealth bailout, propping up AIG with special tax breaks – tax breaks that Congress should stop. AIG should thank American taxpayers for their help, not bite the hand that fed them for helping them out in a crisis.”
In a letter Tuesday, Rep. Peter Welch, D-Vt., warned AIG Board Chairman Robert S. Miller, “Don’t do it. Don’t even think about it. AIG became the poster company for Wall Street greed, fiscal mismanagement, and executive bonuses – the taxpayer and economy be damned. Now, AIG apparently seeks to become the poster company for corporate ingratitude and chutzpah. Taxpayers are still furious that they rescued a company whose own conduct brought it down. Don’t rub salt in the wounds with yet another reckless decision that is on par with the reckless decisions that led to the bailout in the first place.”
Rep. Maxine Waters, D-Calif., stated: “It is simply outrageous that the board of the American International Group Inc. would even consider suing the federal government after America’s taxpayers stepped up and bailed them out over their bad bets on mortgage-backed securities. This is even more troubling given that it comes on the heels of a public relations campaign, the purpose of which is supposed to ‘thank’ the American taxpayer for saving the firm. I would urge the board to drop its consideration of the lawsuit, thank the American public for the $182 billion rescue package that prevented the company’s collapse, and support the reforms in the Dodd–Frank Wall Street Reform and Consumer Protection Act that ensure that systemically important financial institutions can no longer hold our economy hostage.”