The new AIG lawsuit should enrage every American taxpayer?

Discussion in 'Politics' started by Earth Ling, Oct 7, 2014.

  1. Interested in seeing how this plays out

    SAN FRANCISCO (MarketWatch) - Imagine you have a friend who drinks a lot and often.
    Until now, they always seem to have a good time. He tells the best stories, gets all the girls. He's the life of the party.
    Then, one day, he wrecks his car. And you and some buddies, who happened to be in the neighborhood, see your pal trapped. Of course, you rush to the rescue. You try to break open the door with a tire iron. Ultimately, you smash the window and pull the poor fellow out. And just when you'd think this guy would sober up and see the recklessness of his ways, he looks you in the eye and says without blinking: “You need to pay for my door and windshield.”
    This is the story of American International Group Inc. AIG, <span>+0.08%</span>  and its longtime leader, Maurice “Hank” Greenberg. Greenberg, as I mentioned last week, is suing the U.S. government over the $180 billion bailout given to AIG in 2008. Up until then, AIG was the life of the party. Huge profits. Strong growth. AIG was an ATM. It earned $14 billion in 2006, $10.5 billion in 2005 and $11.05 billion in 2004.
    But it was lubricated with risk. Oops. The insurer reported $99 billion in losses in 2008 and lost $3.37 billion through the first nine months of 2009.
    Greenberg and his companies (notably Starr International Co.) were the biggest AIG investors at the time, and the government's bailout effectively crushed their shares.
    In August 2007, an AIG share was worth $1,320. Today, it's $52.65. That's a 96% drop.
    Maybe, if you're “Hank” Greenberg, that doesn't seem fair. On the other hand, it's better than being dead.
    And that's exactly where AIG shares would be without taxpayers' aid. Yes, taxpayers. You. You're the one who smashed the window and pulled AIG out of the burning car.
    And guess what? You're the one who's on trial now. Your buddy wants you to pay to fix his car.
    As your counsel, I have some good news and bad news.
    The good news is you have a great case. There is no legal precedent that suggests you're at fault. It was the heat of the moment. You did what you had to do. Moreover, there isn't a jury that's likely to sympathize with your friend and his slick lawyer.
    The bad news is that on your team are a bunch of knuckleheads who have the potential to make you look bad. They're your buddies who helped you that day. Remember them? Guys like former U.S. Treasury Secretaries Timothy Geithner and Henry Paulson. Former Federal Reserve Chairman Ben Bernanke.
    I told you it was bad news.
    The government team that organized AIG's bailout made some mistakes. They bought 79.9% of the company and used it as collateral against the loan. The loan had a 12% annual interest rate. They allowed AIG creditors to be paid at 100% of their claims even though AIG was effectively insolvent without the bailout. This included Goldman Sachs Group Inc. GS, <span>-1.96%</span>  which was paid $12.9 billion for credit default swaps it bought through AIG.
    Goldman, of course, took $10 billion in bailout funds. The company says it didn't need the money, that the credit default swaps were hedged. But it took the money anyway. And some see this as a back-door bailout of Goldman, the Wall Street firm from which Paulson, who was Treasury secretary at the time, left a couple of years earlier.
    And then there's Geithner, who didn't work for a bank, but worked on Wall Street as head of the New York Federal Reserve. He kept close contact with his banker friends before and after the crisis.
    Paulson was kind of like one of your buddies at the accident scene, having worked for the car-repair shop. Geithner is the guy who had a supper club with guys at the tow-truck company. There may be no real connection, but it smells funny.
    This isn't your fault, but you're on the line. If Greenberg wins his lawsuit, or if the government capitulates to a settlement, this is going to come out of your pocket. Again, your taxes would be headed to placate Greenberg and other shareholders who have joined the case.
    In the end, however, there is this truth: Your pal in the accident, or AIG, would be toast if it wasn't for you. And that includes everyone on the jury. Let's not forget Greenberg may not have been directly responsible for the risk taken at AIG - he stepped down in 2005 - but he wasn't exactly CEO of the decade.
    AIG was forced to restate earnings for 2004 and the three years that preceded it. AIG used some accounting tricks and off-balance-sheet entities to boost or tune down the company's financial reports. AIG executives also were targeted in the bid-rigging scandal at insurance broker Marsh & McLennan Cos. MMC, <span>-2.44%</span> As far back as 2003, credit-rating agencies raised questions about AIG's entry into credit-default swaps.
    None of this should come as a surprise. After all, a lot of people with drinking problems blame everyone except themselves.

  2. Except that isn't the scenario

    The bailout funded by tax dollars aren't the equivalent of saving your friend.

    Its more the equivalent of a neighbor burning out on drugs, becoming homeless and starving, then stealing food from you.

    Yea they would have starved if you didn't have food to steal.

    But you are right about one thing op. This story enraged me!

    Fuck agi and fuck our "leaders"

    "what is a bunny of fish?" - Christopher Brown
  3. I agree that we shouldn't have bailouts, for anyone, ever.
    However, the argument they make is that they were given essentially predatory interest rates while other banks had free cash thrown in their face, by comparison.
    12-14% is out of fucking control, much less for a government loan. You think JP Morgan paid that shit? 
    This is purely political happenstance. JP Morgan et. al. have more political pull. Give AIG an insane interest rate while our going concern is practically untouched. 
    As ridiculous as all of it is, there is a point being made here. 
  4. well if their options are bankruptcy or 12% interest....gotta do what you gotta do.

    Goldman losing out on 1 swap contract isnt even a big deal either, they probably have swaps on swaps just incase that shit does happen.

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  5. Isn't that why they called it predatory interest rates?

    There wasn't much choice. They were taken advantage of.

    "what is a bunny of fish?" - Christopher Brown
  6. #6 STilladelph, Oct 8, 2014
    Last edited by a moderator: Oct 8, 2014
    Idk about you but if I were to buy out 80% of a company's stock which was soon to be worthless, I'd expect a big return. That's the whole idea behind risk return tradeoff is it not?

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  7. Don't get me wrong, I think we should've let them fall flat in their face, but there was political bullshit around the whole thing. Whoever has the best connections gets a better deal and competition gets a raw deal.

    I'm not concerned about the well being of AIG, it's the process I take issue with.
  8. Pretty sure Lehman bros was valued higher than AIG also, no bailouts there.

    One of my professors I stayed close with (used to be a top exec at Lehman) said he knows people that are STILL working there finalizing bankruptcy papers, swap defaults, investment liquidation etc lol

    Sent from my SAMSUNG-SGH-I337 using Grasscity Forum mobile app
  9. Henry Paulson called it himself.

    "What I did saved the world from economic collapse.. But unless something new is altered.. What I've created is far worse"
  10. does this guy ever reply to his own threads?
  11. he does just not often

    Probly posts high and forgets about them

    "what is a bunny of fish?" - Christopher Brown
    i can relate

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