Counterparties: American International Gall

January 8, 2013

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What kind of thanks does AIG owe the government that bailed it out to the tune of $182 billion? How about a $25 billion lawsuit?

We’re not talking, here, about the 2009 AIG that ran ads saying “The biggest risk is not taking one”. Today’s AIG is the one that’s been saying “Thank you, America”. Still, according to the NYT, AIG’s board will consider joining a shareholder lawsuit filed in 2011 by Hank Greenberg, AIG’s former CEO.

Greenberg’s lawsuit argues that the AIG bailout was unconstitutional, robbed shareholders of billions, chased off private investors and was, as Matt Levine puts it, “much crappier than everyone else’s” bailout. You can read the full suit, but Greenberg also has a plain-English summary in his new book “The AIG Story“, which, incidentally, comes out later this month. In the preface, Greenberg sums up his beef that AIG’s counterparties were paid full value for derivatives contracts with the insurer:

The government channeled a large portion of [its bailout] funds, some $60 billion in all, not to help AIG but to save various large banks, including Goldman Sachs, paying them full price on contracts whose value was known to be a deep discount from that…The government’s arrangement doomed AIG to repay these funds by selling many of the businesses it had built over the previous decades.

A New York judge dismissed the suit, ruling that the US government was a simply a creditor and wasn’t guilty of “Napoleonic plunder” of AIG’s assets. But the case is still pending in a DC court. Lawmakers are already warning AIG not to even think about joining the suit.

Peter Eavis points out that the US, more than once, had to make the terms of its bailout less onerous: “the government could have made more, if it had chosen to.” But John Carney has stepped up to defend the indefensible. Greenberg has made a colorable claim that the US government violated both the rights of AIG’s shareholders and a Delaware court order intended to preserve those rights. Since AIG’s board exists to represent AIG’s shareholders, says Carney, it at least owes Greenberg a fair hearing.

Which is what Levine sees the board meeting to be about. AIG’s board, he writes, will politely pretend to listen to Hank Greenberg’s concerns about shareholders, and will then disregard them. “As long as this meeting is long and PowerPointy enough, they’re fine”. – Ryan McCarthy

On to today’s links:

The Fed
The effects of quantitative easing — now the answers start to matter – Mark Dow

Regulations
A Goldman team that’s “very much like a hedge fund” seems to be very much violating the Volcker Rule – Max Abelson
Basel regulators are forcing banks into repeating one behavior that led to the financial crisis – John Carney

Pivots
BofA “sending a clear message that the bank only wants to be the mortgage lender to a select, small group of people” – DealBook
BofA’s mortgage settlement tally is now over $43 billion – David Benoit

Bad Ideas
Letting the payroll tax cut expire was a terrible idea; extent of terribleness unclear – Cardiff Garcia
A very specific analysis of the disaster that would come from going over the debt ceiling – Ezra Klein

Wonks
Are health care costs really slowing? – Sarah Kliff
End-of-life-care is not a driver of higher health care costs – Ezekiel Emmanuel
Considering scrip – Paul Krugman
The Keynesian multiplier may be high or low, but it doesn’t matter to the US right now – Noah Smith

Alpha
This may surprise you, but the world of managing money for Ivy League endowments is pretty clubby – Bloomberg

JPMorgan
Hedge fund that bet against JPMorgan in the Whale trade steals bank’s top sales exec – FT

Charts
The Regulatory Life Cycle: From crisis to thumb-twiddling – Lisa Pollack

RIP
Remembering Richard Ben Cramer – NYT

EU Mess
European unemployment rises again, hits 26% in Greece – Eurostat

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