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Bailouts

Forget Gratitude: AIG Considers Suing U.S. Over Bailout


Greenberg, former chairman and chief executive, says AIG got a raw deal

Photograph by Jin Lee/Bloomberg

Greenberg, former chairman and chief executive, says AIG got a raw deal

At the behest of its former chief executive, Maurice Greenberg, AIG (AIG) is considering joining a lawsuit filed by its shareholders against the government. On Wednesday, according to the New York Times, Greenberg, 87, will try to persuade the AIG board that the terms of the company’s $182 billion government bailout were too onerous, the interest rates were too high, and ultimately, that AIG shareholders got a raw deal. What’s that about biting the hand that feeds you?

Swallow for a moment that feeling of outrage swelling in your gut, and consider this: Gratitude doesn’t make money. Whether or not the board decides to join the $25 billion shareholder suit, considering such an action is exactly what it’s supposed to do. The AIG board’s top priority is to return value to its shareholders. If they think the insurer left money on the table back in 2008 and there’s a chance to recoup some of it, the decision is easy: Sue the government that saved it from bankruptcy during the darkest days of the financial crisis. Crass as that may be, it would be a smart business move.

Still, it’s hard to see that $182 billion figure and think that somehow AIG got screwed in the deal. The government did, after all, end up owning more than 90 percent of the company. And remember how that deal came together. The alarm bells on AIG didn’t go off until the disaster at Lehman Brothers was well underway. Treasury Secretary Hank Paulson and his team had to act fast, and AIG was in no position to negotiate favorable terms. The alternative to being rescued was to go bankrupt and default on its $440 billion portfolio of credit default swaps, which plausibly could’ve brought down the entire global economy. AIG owed money to just about everyone. Not making good on those payments would’ve turned a disaster into complete and total Armageddon for the global economy.

And to Greenberg’s point, no one else was lining up to save AIG; the alternative to the government’s terms was, presumably, complete ruin for shareholders, too. AIG almost blew up the world through terrible decisions made at its financial products division in London. The company’s true mistake wasn’t letting the government cram an onerous deal down its throat, it was thinking that it could insure billions worth of corporate debt the same way it insured cars and houses. Sometimes you get what you deserve.

Philips_190
Philips is an associate editor for Bloomberg Businessweek in Washington. Follow him on Twitter @matthewaphilips.

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