It’s true what they say: no good deed goes unpunished. After accepting billions of our dollars in 2008 and being allowed to continue for another day, American International Group Inc, which was the insurer rescued by the U.S. government, is threatening to sue.
The major insurer is now in the crosshairs of lawmakers after announcing it would join a growing lawsuit that states the bailout rules and regulations were “unfair”. Unfortunately, the average American citizen can’t join that lawsuit – they too collectively believe the bailouts were unfair, but for totally different reasons.
One congressional Dem said the lawsuit is “utterly ridiculous” while former New York Attorney General Eliot Spitzer called it “insulting to the public.” The White House, as expected, has opted to remain mum.
New Ad Campaign Ridiculous
What’s so bizarre about the timing is that the insurer just released in recent days a major TV ad campaign that’s titled “Thank You America”. Clearly, the left hand knows not what the right hand is doing. What’s so interesting is that it continued with promoting its campaign on Tuesday, even as news broke that the ones the company was thanking could very well be the ones it sues.
On Tuesday, the company announced its board members would be meeting with others already in the lawsuit later this week to discuss its options. There are those analysts who don’t believe AIG will actually become a part of the lawsuit, but with so much unbelievable goings-on in the financial and credit markets, no one is assuming anything.
The White House predictably declined to comment on the potential for a lawsuit, though it did defend the $182 billion bailout.
The Warren Factor
The new force to be reckoned with in Congress, Senator Elizabeth Warren, who is feared by Wall Street as a potential problem on the Senate Banking Committee, called talk of this potential involvement in the lawsuit “outrageous”. She also said the company would be wise not to “bite the hand that fed them for helping them out in a crisis.”
Then there are the securities experts who say the AIG board would be wise to consider the entire matter as part of its fiduciary duty. As AIG prepares for meetings on Wednesday, its former CEO Maurice Greenberg is busying himself by accusing the New York fed of using the monetary save to bail out different Wall Street banks for ulterior motives. He went so far as to call the Fed a “loan shark” because it routinely charged interest of 14% and higher on the loans.
A former bank examiner summed it up best,
If AIG enters this suit it would be the equivalent of a patient suing their doctor for saving their life,
said Mark Williams, who was once employed by the Federal Reserve. He’s now a professor in finance at Boston University.
If you’re thinking this is all new and different, you should know Greenberg has had lawsuits filed for months as one was dismissed in November of last year. This provides a bit of perspective in terms of the time the insurer has had to consider its options. That first suit filed by Greenberg is being appealed. Another lawsuit is pending at the U.S. Court of Federal Claims in DC.
One representative with the Fed said that had AIG not taken part of the bailout, its only other option would have been bankruptcy, which would have left its shareholders with nothing but worthless paper. Elijah Cummings, who is the ranking Dem on the House Committee on Oversight and Government Reform said he understands that the AIG board has a “fiduciary duty” to consider its options, but also says that the company had a choice in 2008 and that it willingly chose the bailout.
An AIG spokesman declined to comment beyond confirming that the board would meet as planned. The deliberations were first reported by the New York Times. He also released his own scathing statement that read, in part,
The idea that AIG might sue the government is an unbelievable insult to our nation’s taxpayers, who cleaned up the mess this firm created.
Barney Frank had his own comments on Tuesday when news broke. In a word, he said he was “stunned”. He also had his own choice words,
There was not the hint of a suggestion of any coercion. They did this very voluntarily, very gratefully. And if the company were now to go around and join this lawsuit, that would be outrageous.
It’s only been a few weeks since the Treasure Department finished up its final stock sale on AIG and said that the bailout resulted in a positive return of more than $22.7 billion for the government. After the announcement on Tuesday, it’s clear what many thing on Wall Street. Its shares slipped 0.8 percent to close at $35.65. After losing half its value in 2011, the stock rose more than 52 percent in 2012, tripling the gains of the broader S&P insurance index.
As with most controversial choices, there are always strange bedfellows that result and the AIG announcement is no different. You may recall Greenberg was ousted from AIG under what the insurer said at the time was a “cloud of scandal”. If the insurer opts to join Greenberg’s suit, it would be an impressive legal victory for the man who once ran the world’s largest insurance company.
A ruling on Monday by a federal judge that says New York Attorney General Eric Schneiderman has no standing to object to a $115 million settlement between AIG shareholders and the former chief executive clears the way for Greenberg to move forward with no fear of legal repercussions of being accused of committing fraud.
So what are your thoughts on this announcement from AIG? Do you think it should even be entertained by the American legal system? Is this proof that no good deed goes unpunished and that the government should stop doling out taxpayer dollars on efforts such as these? Share your thoughts with us in our comments or join the conversation on Facebook.