Tuesday, January 8, 2013

AIG considers suing US for onerous bailout terms

Greenberg has filed a lawsuit already, and he is asking the board to weigh in and join him in suing the US government for around $25 billion (roughly equal to the 'profit' they made on the bailout) because they charged onerous interest rates (14%) and other unfair terms.

My first, second, and last reaction is Wow. It takes some gall to turn around and sue the government when you chose to accept their assistance - and AIG did choose that path, unlike some of the banks who allegedly were effectively forced to take the government assistance and enter into mergers. Some nerve.

The more important takeaway though, is that the government circumvented established bankruptcy law that is set up to handle a situation where a company has made bad decisions and is in financial ruin. No company should be labeled TBTF, if they fail they should go through bankruptcy and have the assets and liabilities lined up and whittled down at discount prices exactly as the law is set up to do currently. Instead the US came in and prevented a bankruptcy - which was well deserved - AIG was neck deep in CDS on mortgage product that was undergoing extreme dislocations and was vastly mispriced. It's not as if other investors didn't see it coming and have a completely opposing opinion and made gazillions of dollars.

4 comments:

Jingle Male said...

"And yet, joining the legal challenge “would almost certainly be widely seen as an audacious display of ingratitude."

I don't think they'll go through with it. But if they do, I hope to have popcorn and front-row seats.

crabsofsteel said...

What is Hank Greenberg thinking? He was head of the firm when Joe Cassano was writing CDS on anything that moved. Does he think a court wouldn't notice that?

Concrete Jungle said...

Not to mention that what should've happened was AIG in bankruptcy, which would've likely resulted in 100% loss for the idiot.

Anonymous said...

I think the bigger issue was that bankruptcy was not able to deal with this situation - a one off filing would have been fine, but the dominoes were falling and it wouldn't have stopped at AIG. There wasn't much difference between what the US did for AIG and say what Jefferies and others did for Knight Capital except for the amount of money and the parties involved.