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AIG Contemplates Joining Stockholder Suit Against US Gov't
inode_buddha writes "After completing its bailout rescue and paying back the money with interest, AIG is considering suing the US Government for doing so. The reasons why? Among other things, the 14% interest rate paid to the government. '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." The former CEO and current major shareholder said: "The government has been saying, 'We're your friend, we owned and controlled you and we let you go.' But A.I.G. doesn't owe loyalty to the government," a person close to Mr. Greenberg said. "It owes loyalty to its shareholders."' The lawyer representing him is none other than David Boies of SCO fame."
AIG was a risky investment. Anyone who would have invested in AIG at that time would expect a return that balanced that risk - that includes the taxpayers.
In rough numbers, it looks like brass scrap is going for about $2.33/lb. Given the big brass balls that AIG apparently possesses, they should never have needed any sort of bailout in the first place...
(And, incidentally, if that 14% interest rate was so crushingly unfair, where exactly were the private lenders willing to offer better rates and cut big, bad, Uncle Sam out of the picture?)
Now, I wasn't in favor of the bailouts to begin with. I'm generally in favor of deregulation, and the only way that deregulated businesses learn their lesson is to be allowed to crash and burn on their own. These guys should have paid the price for their failure to understand how to do business so that the stockholders and the boards would understand in the future that they cannot allow bozos to run their businesses.
However, AIG stockholders are still in the wrong here, despite the forced bailout. How can you say you might have made more money when your other option was collapse? It's clear that the interest rate was very high, but it was well within AIG's ability to pay it (obviously). And now, those stockholders are trying to double down. No way.
Of course, this case seems so absurd on the face of it, that I must be missing something. I'm probably going to see what the details are, but at this point, it is looking like funny business.
When AIG took on the deal, their stock price was crap. They expected that once they took the deal, which was the USG buying preferred stock, which pays dividends, that the stock price would fall and stay LOWER than the buy price until the USG's stocks were bought off from payment via dividends and cash buyback. This turned out NOT to be the case and the stock price went ABOVE what the USG bought it for. What AIG is crying about, is the fact that they had to buy back their OWN STOCK from the USG, which they had an option NOT TO TAKE, at the current market rate which was, surprise surprise, HIGHER than when it sold it to the USG. There's nothing to sue over here. It was a standard loan backed by the only asset that AIG had at the time: its own stock. No "property" was bought by the government, and the government's voting rights were limited by the wording of the purchase, even though it should have had a ridiculous amount of power with that large of a percentage of *PREFERRED STOCKS*.
We may have laws, but we have no rule of law. The 2008 financial crisis is proof of that. We already have the laws we need to put these people away, Reagan imprisoned nearly 1000 bankers for much less egregious crimes during the S&L crisis. Fraud is illegal, perjury is illegal, and running a business that profits from such activity is illegal.
No, this is not a problem with our laws. It's a problem with our government being incapable of enforcing the law against the powerful. Vigilante justice is the only solution. Put a few bullets through a few CEOs and they'll be begging to see federal court instead.
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"They", in this case, refers specifically to AIG, not banks in general. AIG wasn't a bank, it was an insurance company. It wasn't a part of the general program where the Fed forced banks to borrow money; it was a separate bailout that occurred prior to the bank forced-capitalization program.
AIG, was in a gigantic liquidity crisis and would have gone bankrupt in a couple of days due to inability to borrow money to pay the influx of claims from the Bear Stearns collapse, along with paying out on the default protection insurance they had written on $hitty mortgages. Nobody would lend money to them except for the feds.
And on a related note, what is this constant equation of shareholders to stakeholders. This is so common in the coorperate world nowadays it just plain sickening.
Quothe the article:
'"But A.I.G. doesn't owe loyalty to the government," a person close to Mr. Greenberg said. "It owes loyalty to its shareholders."'
No it doesn't. A large coorperation has many parties it relies on for it's very existance. The government being one of the more important ones. Without a government to back the financial markets or even guarantee a basic rule of law, none of your coveted shareholders would even think about investing in your sorry bank.
Never mind your employees, or your customers!
IMHO this is at the very root of this whole crisis, this very narrow perspective on responsability. Many famous leaders of industry in the past considered it as important to provide as many working people with a decent living as increasing the fortunes of a select few. These days it seems as CEO's and other corperate crooks only think about their own wallets and, if bothered about accountability, start jabbering about the shareholders only.
Makes me sick to my stomach, it really does.
http://en.wikipedia.org/wiki/Stakeholder_(corporate)
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