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Rescued by a Bailout, A.I.G. May Sue Its Savior

dealbook.nytimes.com

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Re: Rescued by a Bailout, A.I.G. May Sue Its Savior

#21

Post by fleitz »

adrr wrote: post #15
sudonim wrote: post #10

From the article: "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.” From a di…

If AIG would have went bankrupt, shareholders would have got nothing. After all the liabilities paid out(to the wall street clients who had credit default swap contracts), there would have been nothing left. US put 170 billion into a company worth $2 billion(market cap at the time) for 92% stake. There is no legitimacy to the claim.

That's not true, the shareholders would only have gotten nothing if the creditors insisted on immediate payment / and/or liquidation.

Given the fiscal situation I'm sure they would have seen the error of their ways. AIG being liquidated would have been possibly the worst thing for AIG's creditors and the best outcome possible for the people of the United States.

The government used the assets of AIG for it's own purposes and did not compensate the shareholders, the government was perfectly at liberty to let the institution collapse, but instead chose to prop it up.

Re: Rescued by a Bailout, A.I.G. May Sue Its Savior

#22

Post by afarrell »

ChuckMcM wrote: post #17
roc wrote: post #13

Earlier quoted context omitted.

Except that bankruptcy (particularly corporate bankruptcy) is hardly as permanent as death. And no-one making decisions at AIG was personally on the hook for remotely that level of responsibility. Conflating their position with calamitous death seems borderline disingenuous. You're soliciting emotional reactions to an unforeseeable emergency. But AIG was in a situation that years of rational business decisions put in…

If you review the situation with AIG, the only available bankruptcy option available to AIG was Chapter 7, aka liquidation. There was no scenario without the government stepping in that they could have used Chapter 11 to re-organize. In this case, a corporate liquidation is exactly like death, the assets are divided up amongst the creditors and the company ceases to exist.

No, liquidation of a corporation is only like a human's death in that it implies the division of the entity's assets.

But the humans making the decision to accept the deal do not feel fear that they will cease to exist and they will leave their loved ones behind. They don't have the animal fear of physical pain either. Unless they have been terribly reckless with their personal finances, they are not at any risk of actual death. At most, they have dread of embarrassment and the shame of having failed the trust of their employees.

Re: Rescued by a Bailout, A.I.G. May Sue Its Savior

#24

Post by smsm42 »

It's kind of funny that the government apparently (if AIG claims are true) did the same to them as what politicians long criticized the bankers for doing as "predatory lending". I.e. if you consider that using one's bad situation to trick him into a loan which terms are unduly onerous is despicable thing to do for a bank - shouldn't be the same thing despicable for the government? On the other hand, if it's OK for the government to do, they shouldn't really use this "predatory lending" term anymore - at least not in a legal context. In a generic rhetoric, you can say "charging this much for a loan really sucks, you're a giant douche if you do that" but legally if it's OK for the government shouldn't it be OK for others?

Re: Rescued by a Bailout, A.I.G. May Sue Its Savior

#25

Post by icambron »

sudonim wrote: post #10

From the article: "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.” From a di…

> Some ex-Goldman Sachs people brokered a deal that made Goldman whole at the cost we-the-people and with bad terms to A.I.G.

That misses the point, I think. It's perfectly fair for you as a taxpayer to complain that it's a sweetheart deal for Goldman and shouldn't be where your money goes. That's all fine, but it doesn't help AIG's claim that it's been mistreated.

The whole purpose of bailing out an insurance company is to make sure it can pay out its policies. The public has no interest in helping AIG's shareholders per se, so of course the government going to drive a deal that screws them as much as possible in the process of getting what it wants. And it should -- like the company, if it's going to make a deal, it should make one that best serves its stakeholders. And if AIG thought the deal sucked, it should have said no and entered bankruptcy (a perfectly reasonable thing for a company to do). But it took the deal because the board, who represents the shareholders, thought that was the better of its two options. So now their stuck with a deal that they wish were better, but I don't see why anyone owes them that.

In other words, maybe the public's best option was to let AIG fail, and maybe AIG's best option was to let AIG fail, but I don't see the scenario in which the government is being unfair to AIG.

Re: Rescued by a Bailout, A.I.G. May Sue Its Savior

#26

Post by OGinparadise »

fleitz wrote: post #21
adrr wrote: post #15

Earlier quoted context omitted.

If AIG would have went bankrupt, shareholders would have got nothing. After all the liabilities paid out(to the wall street clients who had credit default swap contracts), there would have been nothing left. US put 170 billion into a company worth $2 billion(market cap at the time) for 92% stake. There is no legitimacy to the claim.

That's not true, the shareholders would only have gotten nothing if the creditors insisted on immediate payment / and/or liquidation. Given the fiscal situation I'm sure they would have seen the error of their ways. AIG being liquidated would have been possibly the worst thing for AIG's creditors and the best outcome possible for the people of the United States. The government used the assets of AIG for it's own purp…

"That's not true, the shareholders would only have gotten nothing if the creditors insisted on immediate payment / and/or liquidation."

Do you really think that the banks (already in the brink of bankruptcy) would have ponied up tens of billions so AIG would continue to operate?

I don't think you know how much of the world's finance AIG controlled via their insurance. http://en.wikipedia.org/wiki/American_International_Group#Fe...

Re: Rescued by a Bailout, A.I.G. May Sue Its Savior

#27

Post by jforman »

smsm42 wrote: post #24

It's kind of funny that the government apparently (if AIG claims are true) did the same to them as what politicians long criticized the bankers for doing as "predatory lending". I.e. if you consider that using one's bad situation to trick him into a loan which terms are unduly onerous is despicable thing to do for a bank - shouldn't be the same thing despicable for the government? On the other hand, if it's OK for th…

The biggest problem with predatory lending is the salesmanship and opacity of terms that make the financial impact unclear to the person buying the loan.

In this case we're talking about extremely savvy investors who were given an offer that they accepted eyes wide open. If this was a bum deal, any anger should be directed at the directors/board rather than the government.

Re: Rescued by a Bailout, A.I.G. May Sue Its Savior

#28

Post by smsm42 »

damian2000 wrote: post #2

Surely the problem with their argument is that when they were bailed out they did have a choice; it was either accept the terms or go under. So if they accepted the govts terms, why should they now be allowed to argue they got ripped off.

Would you accept this reasoning for any deal? Because there are many folks now that claim banks tricked them into accepting unfair deals - even though they were perfectly free to deny these terms and reject the deal. There are many other situations where you can be offered an unfair deal and still be able to sue even if it's voluntary transaction - e.g., if you are offered to be hired and because of your race, your employer says you'd be getting 10% less salary. If you don't like it, you can reject the job, nobody's forcing you. But the law still says offers like that are not legal. So the notion that there's a choice does not always mean the deal is OK. Obviously, the concept that if they had a choice, they cannot argue they were wronged does not work in current law. Why deals with the government should be an exception? The AIG may be indeed wronged or may be they are full of it, but unless you reject the whole legal tradition that there can be unfair deals, that needs to be figured out looking at the facts and can not be rejected just because they agreed to it.

Re: Rescued by a Bailout, A.I.G. May Sue Its Savior

#29

Post by farseer »

smsm42 wrote: post #24

It's kind of funny that the government apparently (if AIG claims are true) did the same to them as what politicians long criticized the bankers for doing as "predatory lending". I.e. if you consider that using one's bad situation to trick him into a loan which terms are unduly onerous is despicable thing to do for a bank - shouldn't be the same thing despicable for the government? On the other hand, if it's OK for th…

The government is not a money lender, it rescued AIG even forcibly one might say because of the doomsday risks it posed to the rest of the economy (they were underwriters on trillions of derivative contracts). The AIG bosses should be happy that they weren't tried in a court of law for issuing fraudulent CDS insurance. All said the circumstances regarding AIG were exceptional and the banking jargon doesn't apply here.

Re: Rescued by a Bailout, A.I.G. May Sue Its Savior

#30

Post by smsm42 »

jforman wrote: post #27
smsm42 wrote: post #24

It's kind of funny that the government apparently (if AIG claims are true) did the same to them as what politicians long criticized the bankers for doing as "predatory lending". I.e. if you consider that using one's bad situation to trick him into a loan which terms are unduly onerous is despicable thing to do for a bank - shouldn't be the same thing despicable for the government? On the other hand, if it's OK for th…

The biggest problem with predatory lending is the salesmanship and opacity of terms that make the financial impact unclear to the person buying the loan. In this case we're talking about extremely savvy investors who were given an offer that they accepted eyes wide open. If this was a bum deal, any anger should be directed at the directors/board rather than the government.

As I said in other comment, would you be willing to support this notion for any deal? E.g., if the offer is very clear and not opaque at all - say, you are in desperate need of a job, and some employer offers you a salary that is 10% lower than legal minimal wage and 20% lower that is common in your profession, and openly says this is because of your gender and race and he knows you gender and race are lazy and unproductive, but since he's low on money he's willing to hire you for low price - would you say such clear and open offer be fine? Current law considers it illegal and unfair, do you reject this concept and would you vote for a politician that would support repealing such laws and declare any voluntary contract which is clear to both sides to be legal? If you would, you would find yourself in very tiny minority in contemporary America. Most people think that some deals are unfair even if both sides agreed on it - and unfairness may stem from many things, difference in power one of them. Powers of AIG management and US government at that moment were obviously very different - so why it is inconceivable to consider that it may be that US government used his advantage to deal unfairly? We know lots of other cases where people in power used their powers to deal unfairly, why it couldn't happen in this particular case? It may or not may happened indeed - that's why you need a court to figure it out - but I don't see, in current legal system, how you can reject the notion that it can be possible in principle.
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