AIG Contemplates Joining Stockholder Suit Against US Gov't 354
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."
the government screwed the bank too? (Score:2)
Re:the government screwed the bank too? (Score:5, Informative)
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in other words, just because the banks are also bad guys, at times, when they get screwed they should have the same legal resource as anyone else. They should not be told well, you may have been screwed,
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"Too big to fail" was Obama said, didn't he?
No, that was Illinois Republican congressman Stewart McKinney [wikipedia.org]. In 1984. When the biggest bank failure prior to Washington Mutual occurred. "Too big to fail" has been policy since the mid-eighties, and law since 1991 [wikipedia.org].
Re:the government screwed the bank too? (Score:5, Informative)
The first 1-pager is Paulson's talking points for the bank. It basically confirms that he put a gun to all their heads. It says they must agree to take their cash, and that if they protested, then each bank's regulator would force them to take it anyway.
http://www.businessinsider.com/uncovered-tarp-docs-reveal-how-paulson-forced-banks-to-take-the-cash-2009-5
That's not true. (Score:5, Informative)
The first 1-pager is Paulson's talking points for the bank. It basically confirms that he put a gun to all their heads. It says they must agree to take their cash, and that if they protested, then each bank's regulator would force them to take it anyway.
No. The banks jumped at the money but they and Paulson didn't want the public to panic if they found out how shaky the banks really were. So Paulson made up that BS story about forcing the banks to take the money.
Source [rollingstone.com]
As time goes on, we're hearing more and more about the shenanigans that were done at the expense of the US taxpayer.
There were 2 bailouts of AIG (Score:4, Interesting)
I think this whole thing's a bit of a red herring. Yes, AIG paid back their bailout money with interest. But if I remember correctly, the government made good on all the AIG insured mortgage backed securities as part of the bank bailouts in addition to bailing out AIG itself. I could be wrong about that, but there was so much cronyism going on in the TARP process that it's safe to assume there's some bait-and-switch going on in the repayment process.
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That's stupid. I had an account with them. I was already worried in '07 - a bank that advertises a "woo-hoo moment" does *not* give me comfort; rather, it makes me think they're playing lots of illegal and borderline legal games in the books and elsewhere.
They went under, because they screwed around. They were sold to Wachovia. (Which, about two years or so ago, was sold to Wells Fargo).
mark
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That's exceedingly narrowminded. Your mortgage terms are fixed. You might not like chase but it wouldn't actually change your terms in any way. I had exactly the same thing happen (Wamu mortgage) and all I had to do was update the info on my automatic billpay with my bank.
p.s. No one FORCED you to do a single thing.
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What fucked Freddie and Fannie was the 80/15/5 game that brokers were using. A 100% financed home loan is inherently risky, and as such sells for a higher interest rate. But people don't want
Serves Obama right... (Score:5, Insightful)
For not putting any of the criminals responsible for the financial collpase in prison where they belong. Now those same criminals are suing the government. Sadly the US taxpayer will once again be on the hook for the payout.
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Lack of reporting standards is part of the reason it's been difficult to trace the blame. "A" says "B" ordered him to be a slime-ball and B denies it. It's all just verbal claims. The new financial regulations will help some of this by adding more signing and reporting requirements for certain kinds of transactions.
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Serves Obama right For not putting any of the criminals responsible for the financial collpase in prison where they belong. Now those same criminals are suing the government.
Exactly - the same corporate psychopaths that caused the collapse of AIG, are the ones organizing this class action suit. Why? Because psychopaths have no shame, no remorse and no conscience.
Errr... that's not who is behind the suit. (Score:4, Insightful)
The guy pushing for the suit, Hank Greenberg, wasn't in charge of AIG at the time of the bailout. He used to run AIG, and has a less-than-sterling reputation, but the shenanigans that caused AIG's collapse did not occur on his watch.
All that said, this is a steaming pile of bullshit. The alternative to the govt. bailout (now shown to have been a REALLY good idea, given how it's made money and prevented the next Great Depression) instant bankruptcy where the shareholders would have been left with 0%, instead of the 20% of the company they ended up with.
Re:Errr... that's not who is behind the suit. (Score:5, Interesting)
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) [wikipedia.org]
Shareholders (Score:5, Insightful)
They were perfectly free to reject the taxpayer bailout and look for money elsewhere.
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I think they were forced to take a bailout. Even years later, after the "stress test" of banks, several banks were forced to take bailouts. This is an example of the "free enterprise" and "free markets" that people blame for our problems. The banking system is, and has been, so non-free market it isn't even funny. It is the most subsidized industry in the world.
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Well you "think" wrongly. The Board of Directors voted to take the credit facility from the government completely of their own accord. This ex-CEO is an idiot. This is just to try to deflect the real blame from himself to the government.
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It wasn't that simple. AIG was on the edge of collapse and the government was the *only* entity around big enough to bail them out. "Let them die," you say in a James T. Kirk-ish way. But AIG was also considered by the government to be one of those "too big to fail" institutions. The Treasury Department had allowed Lehman Brothers to implode the week before, but AIG was even larger and Treasury wasn't willing to let AIG go under the same way--there's an excellent chance that an AIG bankruptcy would have tur
Re:Shareholders (Score:4, Interesting)
Lending money to a company that is already bankrupt takes a risk premium. According to Greece bonds interest rates, a 8% premium for high risk bankrupt assets is not a large premium.
Beside, many bad assets have been bought from AIG by the treasury, assets that had no real value, but were still paid for so that AIG doesn't go under mechanically. These people should just STFU.
Re:Shareholders (Score:5, Informative)
I'm seeing a lot of confusion in this article. Everyone needs to remember AIG IS NOT A BANK. AIG is an insurance company.
AIG was not the people participating running the 'slice up mortgages and resell them' hot potato game that the banking industry had become. No, they were the people who cleverly looked at that with an outside eye and said 'Hey, would you people like to buy some insurance in case that entire insane stupid money orgy fall apart and everyone realizes it's all built on total shitpile mortages? You would! Alright!'.
And then, astonishingly enough, it did fall apart, and AIG owned approximately a fifteen bajillion dollars to the banks that had purchased said insurance. Why, it's almost as if insuring trillions of dollars of completely idiotic business plans was a bad idea!
They functionally did the equivalent of selling homeowner insurance to people who operated a drunken flaming torch juggling and firework-reselling business employing known arsonists. On top of their gasoline-soaked straw-roof lit entirely by candles. During a drought. Inside a forest fire. While the house was actually already on fire.
And in a total surprise to everyone, those houses all burnt down and AIG had to pay for it all, and didn't have enough money. In a just universe, they'd be completely and utterly bankrupt.
The problem is, they also insured, like, uh, everyone else. Car insurance, life insurance, retirement insurance, annuities, everything.
And unlike the banking industry, which has things like FDIC insurance for deposits, there is no Federal bankstop if, for example, you die and your life insurance company can't cover the payout.
So guess what we, the taxpayers, had to do?
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No, they weren't forced to do anything. Even if they were "forced" to receive the money, they weren't forced to use it. And again, if they were "forced" to use it, they weren't dictated to how to use it.
They simply took the money, knew full well what they were doing, and now, they want the company back, minus the problems.
I think the case should be thrown out of court on the first try, and put those state owned percentages on the market, at their current, real value.
This is the deciding trial for the USA. T
Forced? I guess by some definitions... (Score:5, Insightful)
If the shareholders think the deal was bad, they should sue the executives who agreed to it. Of course, they all know that the only remaining alternative was to declare bankruptcy, so what this really is about is a greedy attempt to get even more money.
Re:Shareholders (Score:5, Insightful)
The banking system isn't an industry, it's a money management system. It doesn't produce anything. That it's been allowed to grow into the size and complexity it has is one of the biggest problems in economy right now: all those imaginary fortunes aren't connected to actual goods or services so they can appear or disappear overnight, leading to a total chaos.
Add ever more complicated financial instruments with ever more tenuous connection to reality, and the general tendency to treat the stock market as a game of hot potato, and it's hard to not think of the finance as a kind of parasitic tumour on the real economy.
Trying to have their cake and eat it too (Score:5, Informative)
Re:Shareholders (Score:4, Informative)
Umm, no.
Even during the Bush Presidency, it was reported that the banks were given no choice about accepting the bailouts, since if any of the big banks refused, people might see some stigma if THEIR bank needed a bailout, pull funds, and go to a "safe" bank that hadn't needed a bailout (a banking panic was the last thing we needed then).
So the first group of banks offered bailouts were told "I'm going to make you an offer you can't refuse"....
AIG wasn't a bank, and was about to go bankrupt (Score:5, Interesting)
"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.
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Except there was no money elsewhere and AIG is the biggest insurance company in the world.
1929 all over again. Same cause, some consequence.
Good argument for not allowing companies "too big to fail" to exist.
For fucks sake (Score:5, Insightful)
Will someone put these motherfuckers against the wall and shoot them already?
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Now, if after passing such laws, the corporations continue their abuses, then we can talk about armed revolts.
Re:For fucks sake (Score:5, Funny)
The problem isn't corporations, it's lawyers. You don't fix that by paying another bunch of lawyers. That just enriches twice as many lawyers. That's how they breed.
I recommend fire, and lots of it.
Re:For fucks sake (Score:5, Funny)
The Lawyer class comes with an immunity to fire - something about their origins being described in a novel by Dante.
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We don't need to do that; we still have laws, and we can still pass laws that rein in corporations.
That would be useful if we could pass laws and enforce them retroactively. However, Article 1 of our Constitution forbids ex post facto laws, so that's a problem.
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Just send a few hitmen to kill the CEOs of a company that annoys you, then pass a law pardoning them.
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Re:For fucks sake (Score:5, Interesting)
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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No, the problem is well understood. Read Bill Black's book. He's the guy that got all those S&L bankers convicted in the 1980s. We have laws against fraud, we have laws against perjury, we have laws against racketeering. They're just not being enforced. They could be, if Obama wanted his justice department to enforce the law. But he doesn't want that.
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In which election can I vote for you? Seriously, that type of crap needs to stop.
Re:For fucks sake (Score:4, Informative)
We tried that in the west once - it was called the French Revolution (with the guillotine instead of guns). The last time I checked that whole didn't turn out so well for anyone.
I'm all for telling AIG to kiss our collective asses because of this lawsuit, but +5 Insightful? Come on...
Re:For fucks sake (Score:5, Insightful)
On the contrary, the example of the French Revolution has supported the spread of Enlightenment ideals. Those in power seem to have forgotten what happens when they substitute the rule of man for the rule of law. They need to be reminded. The fear of revolution is the only thing that keeps the powerful in check.
The US Governement can respond (Score:4, Interesting)
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.
Well... (Score:5, Interesting)
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?)
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(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?)
No kidding. Looks like Wall Street can't live under the rules it expects everybody else to sacrifice everything in the name of their profits for. I wish our government would have given them the middle finger and told them to find private investors to bail them out.
This whole noise about a lawsuit has to be some negotiating gimmick to lower the interest rate. As in, give them a refund on money already paid back.
Screw them, time to initiate fraud lawsuits instead. Then their objections would suddenly vanish.
Re:Well... (Score:5, Insightful)
There is certainly a case to be made that the AIG bailout was structured in no small part for the benefit of AIG's counterparties(for reasons that, um, have absolutely nothing to do with the fact that Goldman Sachs was one of the big ones, and the thing was essentially written by GS staff temporarily working for the feds); but it takes serious chutzpah to complain about an interest rate lower than the one on a consumer credit card when your situation was so fucked up that nobody would touch your corpse with somebody else's ten foot pole during one of the most dramatic capital-market fuckups in the history of capital markets...
Re: Well... (Score:3)
This is CAPITALISM at its finest. Somebody needs money... You get whatever you want out of them short of sexual favors...
Capitalism isn't about FAIR dealing, it's about POWER. The Feds had the money, the banks had to take the money because their numbers fell down. Just like a customer takes a payday loan at 309% APR so they don't get their car repo'd right this minute. (And yes, the big banks own all those companies if you follow the money trail)
So no hard feelings. Ok.
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...where exactly were the private lenders willing to offer better rates and cut big, bad, Uncle Sam out of the picture?)
Er, AIG would typically be that private lender. You may recall that many banks and smaller firms went out of business due to the financial crisis, and a whole lot of illegal activity happened as they tried to stay afloat -- most recently in the news was how millions were foreclosed upon and even more threatened with foreclosure. Many billions have been shelled out by over a dozen major banks over this... though frankly, many billions more should have been fined against them since they're still coming out a
Re:Well... (Score:5, Insightful)
That's my point: If you want to argue that 14% is some sort of cruel usury, step up and show me the better offer... *Crickets*.
Given the state of the capital markets, and the fact that the 'insurance' that was supposed to have negated a whole bunch of risk was suddenly being offered by a company that had no money, 14% was a gift. Had there been something better on the table, from another party, and Uncle Sam made it clear that 14% was an offer you couldn't refuse, you might have a case. As it was, though...
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Good for them.... (Score:2, Interesting)
I hope they win their lawsuit. If only the shareholders and bond holders of GM would do the same. What a massive money laundering scheme.
UAW supports Obama
Obama takes over most of GM shares screwing the bond holders (mostly retirement funds) in the process
Obama gives most shares to the UAW
UAW waits six months and sells the shares
Each of these steps were covered in the regular media but, for some reason I have yet to see an article putting all the steps together. If you think this is an anti-Obama thi
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Except it was W who bailed out AIG.
Re:Good for them.... (Score:4, Insightful)
Employees always come before creditors in bankruptcy, even "secured" creditors.
Re:Good for them.... (Score:4, Insightful)
If you think this is an anti-Obama thing it isn't as it would be equally as terrible if a Republican did it.
I wish the Republicans did it.. that way there would be a legion of people complaining about it today.
Instead, the Democrats did it. Lets see what the legion has to say now.
Re: Good for them.... (Score:3)
The single largest debt holder of GM was the Union in the form of pension obligations. Whenever a company goes bankrupt, EMPLOYEES are typically paid first. The amount of pension outstanding was most of GM's value. Now that the Union has that obligation, they will sell the shares to pay the benefits. Nothing hinkey at all.
Re:Good for them.... (Score:4, Insightful)
The previous example is classic and describes one of the fundamental hypocrisies of politics: it's ok if the good guys do it, but not ok if the bad guys do it. Another one is the evolution of power. Too many people are willing to grant some political figure power because they like that person. They aren't willing to consider what happens when that political figure is no longer in power and another less appealing figure comes in.
As I see it, I want a government stable enough that it doesn't fall apart the moment an extreme faction gets in power. You want something that can survive a neo-nazi, fundamentalist (of any religious flavor), voluntary human extinctionist head of state, or whatever crazy ideology is out there. And frankly, I think the US has such a system. It's survived (so far) both G. W. Bush and Obama, for example, and that's probably as extreme a difference in ideology as you're likely to get.
Re:Good for them.... (Score:5, Insightful)
It's survived (so far) both G. W. Bush and Obama, for example, and that's probably as extreme a difference in ideology as you're likely to get.
For real? You think Bush and Obama are extremely different?
December 2008, Bush was gearing up to leave office and Obama was gearing up to enter office. Both proclaimed their support for the GM bailout:
From wikipedia:
December 12, 2008: General Motors stated that it was nearly out of cash, and may not survive past 2009. The U.S. Senate voted and strongly opposed any source of government assistance through a bailout bridge loan (originally worth $14 billion in emergency aid) which was aimed toward helping the struggling Big Three automakers financially, despite strong support from President George W. Bush and President-elect Barack Obama, along with some mild support from the Democratic and Republican political parties.
We could list the similarities for hours, right? Everything from the PATRIOT act, support for the TSA, the bailouts of private corporations, and countless billion dollars of government grants to private corporations that donated to campaigns, etc..
You are seeing differences where they don't exist simple because of who you are talking about, even though you arent labeling one side good and the other side bad. You have just demonstrated exactly what the GP was talking, simply pretending that one person is different than the other in spite of a lack of demonstrable evidence to suggest that it is actually the case.
First bite the hand that feeds you... (Score:2)
And then settle in for a nice long chew. What undoubtedly happened is that the bailout interfered with some upper management pig's hedge fund investment and he didn't make the millions in profits he was expecting when the company finally failed.
Interesting implication. To bother with the lawsuit, they must be planning a repeat performance, and don't want their bets interfered with this time.
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Can the citizens file a class action? (Score:4, Interesting)
I have an even better idea: Let's get the entire population of US citizens to file a suit against the government, and all the politicians individually, for wasting our money bailing out failing companies.
Re:Can the citizens file a class action? (Score:5, Insightful)
The thing is though that it wasn't a waste of money. We got a stinking big profit out of it.
Not only that but we saved a metric fuckton of money on things like pension insurance, deposit insurance and unemployment benefits that we would have had to pay out if they had gone tits up.
Re:Can the citizens file a class action? (Score:4, Insightful)
The thing is though that it wasn't a waste of money. We got a stinking big profit out of it.
That's "The Seen". What else didn't happen because all that money was diverted to AIG? That money doesn't come out of thin air - it's either taxed or inflated. If taxed, people don't have the money to spend directly. If inflated, people are paying more for everything and (in a constant-level-salary environment) decrease their spending elsewhere.
How many, e.g., dance studios, went under because families had to cut back on extras because their grocery bill went up by 50%? These diffuse long-tail effects are what Bastiat termed "the Unseen" [econlib.org] and are always ignored by politicians because the People let them get away with that.
Re:Can the citizens file a class action? (Score:5, Informative)
It wasn't taxed or inflated, it was borrowed at ~5% and then loaned out at 14%. it was pure profit for the government.
Re:Can the citizens file a class action? (Score:4, Informative)
Your arguments:
Inflation:
Grocery inflation is running at under 2% a year. Overall inflation is about the same. Credible alternative measures of inflation support the BLS data. You are wrong.
Source: http://www.bls.gov/news.release/cpi.nr0.htm [bls.gov]
Taxing:
Money was lent, not spent. It has been repaid. The actions happened in a Liquidity Trap, where evidence for crowding out is non-existent. And evidence for even soft Ricardian Equivalence is weak, so your argument doesn't even make sense under your misconstruction. You are wrong for several reasons.
But interesting! Don't fall too far down the Austrian School hole, though. The past 6 years have proven that modern Keynesian economic models are a very good description of how the global economy actually responded to the recent massive financial problems. Saltwater is simply (and rightfully) abusing Freshwater at this point - certain conservative economists and pundits should be embarrassed to continue to flog their dead talking points.
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Citation:
http://www.nbcnews.com/business/taxpayers-make-money-tarp-treasury-says-715381 [nbcnews.com]
The problem with a free market approach is that we don't have a free market. We have a collection of oligopolies in a regulated economy. When somebody fails it results in market consolidation not renewal and diversification. ESPECIALLY in the banking sector.
Look at happened to the companies that failed. They were adsorbed by those who didn't. And now we have an even more concentrated banking sector.
It's silly to spout off
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Let's get the entire population of US citizens to file a suit against the government, and all the politicians individually, for wasting our money bailing out failing companies.
That would be something, if the US government hadn't earned a profit of $22.7 billion on the AIG bailout. If I recall correctly, that's part of the substance of AIG's complaint that's being discussed here.
Funny business (Score:5, Interesting)
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.
Re:Funny business (Score:4, Insightful)
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.
It never worked before. Why should it work now? There's an economic bubble busting roughly every ten years. The more deregulation, the bigger the bubbles and the bigger the bust.
People are too greedy to learn the lesson. They'll be cautious for a while and then forget it after a few years. Only state regulations can rein in all that greed and stupidity. Provided the State is owned by The People, and not in the hands of a few privileged that sway it in their own interest.
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Kind of depends on what you mean by deregulation; it's an incredible vague term. Also, deregulation and allowing businesses to fail would not mutually exclusive. I'm inclined to favour some regulation and oversight of businesses (and markets) who, by virtue of their size, would cause severe economic issues if they were to collapse.
To argue otherwise is like saying that it's fine to let people perform DIY structural alterations of their houses, as they'll learn not to do it if they accidentally knock down a
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The government didn't just charge interest, they also got equity in the company that massively diluted existing shareholders. Effectively, it's as though the government confiscated 90% of every single AIG shareholder's shares in exchange for giving AIG a loan - with interest - that it promptly paid out to other companies that'd basically swindled them. The shareholders might well argue that they'd have been better off if the company had gone insolvent, especially since it had more than enough assets to cove
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They were denied a free market conclusion to their issue, but their argument that there was an alternate profitable option for their stockholders is complete BS.
The time to sue would have been when they were being handed the deal. The reason they didn't is because the government probably would have retracted it because it was already politically difficult to sell it without the added insult to the public of having giving them a sweetheart deal.
So, now that they still have a company to sue with, they are su
Dear AIG (Score:5, Insightful)
Pump and dump scheme. (Score:2)
Boies Again? (Score:2)
How does this guy keep finding work? His track record seems iffy since his last "big" win against Microsoft.
Devil is in the details (Score:4, Interesting)
The AIG (and other) bailouts were not typical bankruptcy cases. These are initiated by creditors when the debtor can't meet obligations. The government's role (the courts) is only to oversee the terms of the reorganization/liquidation. With AIG, the court case will probably depend on who and how AIG was found to be illiquid (or under capitalized), and how the exchange of equity for a capital injection was requested. If AIG's board of directors came looking for help, the government may not be guilty of taking private property. If the BoD negotiated that deal, it was their prerogative to do so, or they are the ones shareholders should be suing (good luck with that).
One could claim that AIG management was pressured into taking the deal. But much of that pressure came from other private investment banks to keep the AIG paper they held from becoming worthless. The Lehman Brothers bankruptcy may stand as evidence of the government offering the option of allowing investment banking to solve its own problems without intervention.
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The AIG (and other) bailouts were not typical bankruptcy cases. These are initiated by creditors when the debtor can't meet obligations.
And unlike the US Govt, no one, company or person, can print their own money to pay off their debt or hold interest rates down so the money they are borrowing is cheaper to borrow. And we bitch about banks manipulation of the flow of money.
Sounds like pot meeting kettle to me. But If I were a money expert, I wouldn't be poor.
"Too Big To Fail" (Score:4, Interesting)
Banks are key infrastructure, almost like electricity and water. Our economy depends on them running smoothly. Thus, we have to treat them as a protected resource, not just some random widget maker.
One could also argue the same for the auto industry in the north east because the economy in that region was heavily dependent on a few companies. Part of the problem is that we allowed oligopolies to form such that failure is almost all or nothing: too big a granularity of change.
Oligopolies are a problem because they create "too big to fail". If there were a dozen or so car companies, then a couple of them failing wouldn't cause the same devastation.
Oligopolies often argue that they need "economy of scale" to be efficient, but that's usually just an excuse. Sub-system specialists could provide economy of scale for specific portions of cars, and perhaps facilitate more standardization.
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Oligopolies are a problem because they create "too big to fail". If there were a dozen or so car companies, then a couple of them failing wouldn't cause the same devastation.
The nature of permanent corporate charters and a regulatory environment that prevents competition makes this nearly impossible to achieve. We've seen how well the "political-favorites and subsidies" model works for the economy. Yet, many are still convinced it's the right model, despite all evidence to the contrary. :sigh:
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I always thought we should separate "money keeping" banks from "money investment" banks. The first kind is the one you really want to keep running. That would significantly reduce the harm whenever a bank crashes.
I also never liked oligopolies. I always felt like company taxes should be like personnal income taxes: the rate rise with the amount of income (notice I say income not profit or capital). That would lead to a de facto limit on companies' size. and would force collaborations across multiple boards.
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I always thought we should separate "money keeping" banks from "money investment" banks. The first kind is the one you really want to keep running. That would significantly reduce the harm whenever a bank crashes.
Isn't that exactly the Depression-era rule that was rolled back a few years before everything went pear-shaped?
Bailout conditions (Score:2)
If I were in charge of the bailout process, the first step in any bailout would be to fire the entire management team, without exceptions. Anyone with truly unique knowledge of the company's processes could be hired as a short term consultant. Modern American management tends to be both incompetent and convinced of their irreplaceability; if they wreck a company, they need to be shown the door.
Also, anything too big to fail should be nationalized and broken up and then the pieces sold on the market (e.g., b
Sue the financial industry ... (Score:2)
Can the whole world sue the financial industry for the mess they made by taking worthless debt and shuffling it around so that it looked like AAA stuff? You know, all of those worthless mortgages and "Asset Backed Paper Commodity" shit they made to look valuable and pawned off on everybody else?
Because if these guys hadn't skimmed everything off the top, and diluted things which had read value, the whole financial melt-down would have never have happened.
Most people's investments haven't recovered, so how
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"Asset Backed Paper Commodity" shit
I read that as "Ass Backed Paper Commodity shit" which if you think about is still a valid description of it and correctly describes what it should have been used for.
What they REALLY expected... (Score:5, Interesting)
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*.
class action sloptrough (Score:2)
Just Compensation (Score:2)
What, pulling your collecting asses out of the fire in the first place isn't "just compensation"?
$!0 says there's will be some accidental (Score:2)
misshaps coming down on the AIG higher up and the lawyers?
Let me be the one to say... (Score:5, Insightful)
What a bunch of ungrateful bastards.
AIG's stock had fallen 95% in a matter of months and the company was days away from bankruptcy. If 14 percent interest was so damn high, why the hell didn't they make the deal with the private investors that were willing to go with a lower rate than the feds?
Oh, that's right, because there weren't any.
They should have tried a payday loan (Score:3)
if they wanted to see how bad interest rates can be for high risk borrowers. Or a title loan on your car's title. Both semi secured debt and I think these run 25 to 30% interest rate. Yeah, cry me a river AIG.
Speaking as an actual shareholder... (Score:5, Insightful)
Frankly, I already made my money. I bought it at the firesale for a buck a share, on the day when they were declared "too big to fail". At the moment I am writing this, those same shares are worth 35.50. AIG is just pissed off that they couldn't do the same thing, a point made by another poster here.
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The government's offered deal was basically...the legal equivalent of a gun to the head with a threat of prosecution if anyone didn't take it, in addition to a permanent financial blackballing.
Assuming your facts are correct, how is that any different from plea-bargaining?
They fucked up, picked the least bad way out, and now they're suing because they didn't get a better offer? Cry me a song.
They should be sending weekly thank-you notes to the Feds for not throwing them all in prison.
AIG was a house of cards... (Score:2)
AIG cooked its ' deals'. Different than cooking the books. Have fun Justice!
Dear Financial Industry (Score:2)
Dear Financial Industry,
Best get a hold of this prick and muzzle that shit. Otherwise, next time, we're going to use this story to whip up public support for letting you all burn to the ground.
Warmest Regards,
The Society That Permits You To Exist
This is a Greenberg suit - not AIG (Score:3)
The suit has been filed by AIG shareholders - led by Hank Greenberg (former head and majority shareholder of AIG). He is approaching the AIG board and asking them to join the suit. The board sees the need to listen to his arguments because he is a majority shareholder and has a large number of other shareholders on his side. In short, the board is merely doing its duty and listening to the shareholders who have appointed them.
AIG, at this point, has not joined the lawsuit. At this point, your anger should be directed at the group led by Greenberg. You may also want to note that this is not the first suit that Greenberg has filed regarding this issue. Another similar suit (I believe targeted at the New York branch of the Fed) was recently thrown out. AIG was not party to that suit.
Without just compensation???/ (Score:3)
How can they say "without just compensation" with a straight face?
How on earth is SAVING YOU FROM COMPLETE FAILURE and producing a situation where YOU PROFITED AND EVEN NOW STILL EXIST, was not just compensation?
How about the US Government sues them for fraud and destabilizing the economy and the downstream effects of all that? Are these wall street jackasses so 'entitled' that they need to be saved and then don't credit the savior? The national guard should go to AIG and shoot these treasonous pieces of trash.
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It did actually. The 14% is the amount the preferred stock appreciated in value between the original purchase and the final payoff.
Re:Poor poor AIG - didn't go bankrupt.... (Score:5, Informative)
A companies first and foremost responsibility is to it's customers, 2nd to it's employees and finally 3rd to it's shareholders.
Um, no. At least in Texas, the directors, officers, and employees owe fiduciary duties to the company (shareholders). The company owes nothing to the customers and employees outside of any contractual duties they assume and the general legal duties like ordinary care and non-discrimination. I assume it's the same in most other states.
(More than usual, this is not legal advice.
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Legally, yes. In many other respects, as a matter of long-term profitability, no. Take care of your customers and employees, and they will take care of you. Abuse them, and they will find someone else.
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A companies first and foremost responsibility is to it's customers, 2nd to it's employees and finally 3rd to it's shareholders.
This bears repeating. Bankruptcy solves this problem as much as anything can. Perhaps due to the systemic risk of so many institutions failing at once, there should have been some sort of action to provide liquidity or whatever. But that could have been done on the cheap while the company was going through bankruptcy. Instead, they turned a crisis into a milk run, transferring wealth from the public to the people who caused the crisis.
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Government should have let AIG go under, then arrested the Executives for reckless and negligent endangerment to their employees.
A companies first and foremost responsibility is to it's customers, 2nd to it's employees and finally 3rd to it's shareholders.
I would add "the public" to the front of that list.