Thanks for the handout
Published on -1/10/2013, 8:18 AM
At least greed has a few bounds. That's about all one could say regarding the insurance giant AIG's deliberation about joining a lawsuit against the federal government.
American International Group Inc.'s board of directors seriously was contemplating whether to participate in a suit seeking $25 billion in damages from the very taxpayers who saved the company from bankruptcy.
The federal government rescued the firm with $182 billion in 2008 after deciding AIG was too big to fail. Because of the company's interconnectedness throughout the global economy, government officials feared letting AIG go down could result in the entire financial system collapsing. Of the numerous bailouts Wall Street received -- some $700 billion -- the AIG deal was the biggest.
And it's a former CEO of the company leading the lawsuit. Maurice "Hank" Greenberg contends the 80 percent stake of the company taken by the U.S. government in exchange for the $182 billion was unconstitutional. The suit claims the U.S. only paid $500,000 for company shares that were worth $25 billion, thereby violating shareholders of due process and equal protection.
Unbelievable. The suit goes beyond biting the hand that feeds; it attempts to rip the arm right off the body.
We're guessing the lawsuit does not delve into minutia such as:
* There would be no shareholders to protect had the government not bailed out AIG in the first place;
* AIG's ability to retain its lucrative commercial property casualty business only because it wasn't bankrupt;
* The Federal Reserve cut the interest rate on loans to AIG, saving it at least $1 billion annually in interest;
* The Treasury exchanged $40 billion of preferred shares for common stock, which meant AIG didn't have to pay approximately $20 billion in dividend payments to the taxpayers;
* The company offered $450 million in bonuses to about 400 workers in 2009;
* That AIG successfully was sued for misleading regulators and investors with accounting tricks in 2005, when Hank Greenberg was leading the company;
* That AIG still receives special tax breaks, authorized by Congress, so great its chief financial officer said in 2011: " ... we're really not going to pay much income tax to the U.S., as we have very large deferred-tax assets" accumulated when the company was unprofitable; and
* That AIG's financial duress was self-imposed by investing in worthless credit default swaps and other derivatives tied to its huge and questionable housing-related portfolio.
Both the George W. Bush and Barack Obama White Houses took enormous heat for the bailouts they authorized. Most of them have proved successful, including the AIG rescue. The Treasury exited its ownership stake in the company just last month -- with a $22 billion profit.
That the lawsuit even exists is a less-than-grateful way of thanking the American public. Quite the opposite, in fact.
We understand by law the AIG board had to consider the despicable action. That they even had to think about it for longer than five minutes underscores the serious problem of having a corporate welfare state. It is capitalism run amok.
Editorial by Patrick Lowry