AIG BAILS ON BAILOUT SUIT

When the United States government rescued the world’s largest insurance conglomerate from bankruptcy in September 2008 to the tune of $182 billion in public taxpayer funds no one foresaw the possibility that anyone with a financial interest in American International Group (AIG) would consider it anything other than a blessing.  However as the saying goes, no good deed goes unpunished.

Former AIG Chairman and CEO Hank Greenburg whose Star International company owned roughly 12 percent of AIG prior to the bailout and now holds an approximately 9 percent stake has filed multiple lawsuits against the government alleging that the bailout was unfair to the company’s shareholders and that the 14 percent interest rate charged by the Federal Reserve was punitive and unfair.  Greenburg also alleges that the 2008 deal which furnished the government with a sizable percentage of ownership in the company equates to unlawful seizure without just compensation in violation of the constitution.  His lawsuit is seeking approximately $25 billion in damages.

Had the government sat back and watched AIG go bankrupt, it’s highly likely that their shareholders would have lost most or all of their financial interest in the company so it’s hard to see how the bailout was unfair to them.  A 14 percent interest rate can hardly be considered excessive or punitive when many American’s pay higher rates on their credit cards each month.  In addition, it is also very hard to conceive how $182 billion and avoidance of bankruptcy can be considered unjust compensation for the ownership stake the government received.  Lastly, it’s not like the government forced the company into this deal.  AIG was given the option and they accepted, plain and simple.   

In what has become a PR nightmare for AIG, Greenburg has been attempting to convince the company’s board of directors to join his lawsuit.  This idea has caused renewed outcries across traditional and social media outlets including everything from political cartoons satirizing the idea, comparing it to the possibility of a drowning victim suing the lifeguard who rescued him, to much more vulgar and personal attacks against current AIG CEO Robert Benmosche.  For AIG to accept the bailout and then turn around and sue their rescuer is the epitome of looking a gift horse in the mouth.

To AIG’s credit however they have reportedly declined Greenburg’s demands to join his lawsuits and they appear to be genuinely grateful for their continued existence as a result of the bailout.  On Wednesday January 9 2013, CEO Robert Benmosche stated that they had declined Greenburg’s demands but that the company had a legal and fiduciary duty to at least review the proposal.  The fact that they have declined to be a party to the suit and have refused to allow Greenburg to prosecute the claims on their behalf is an indication that the company may truly be on the right track.

When all was said and done, the United States Treasury ended up with a 92 percent stake in AIG, the last of which was sold in mid-December.  AIG now again rests completely in the hands of private investors.  AIG has completely paid back their debt to the government, with interest amounting to $22.7 billion in profits, and has been running television ads publicly thanking the American people for their trust and support.  AIG’s stock lost half of its value during 2011 but gained more than 50 percent during 2012.  On Wednesday AIG stock closed at $35.76