AIG considers suing government for bailing it out | Hacker News Reader

AIG considers suing government for bailing it out

washingtonpost.com

67 pointscgs101938 comments

I think that this headline a bit misleading. AIG is legally required to consider it because their former CEO is a huge shareholder and is demanding that they consider it. Since it has potential shareholder benefit they have to hear him out.

NPR's Marketplace covered this story tonight and provide a bit of context:

"[Henry Hu, a law professor at the University of Texas and a former SEC regulator] says AIG’s board has an obligation to consider the lawsuit because of shareholder interests, “but they should also consider the costs of this in terms of their relationship with the regulators.”

Don’t forget, AIG is the company that just started running ads saying -- no joke -- “Thank you America.”

A spokesman for the New York Fed said the allegations have no merit because bankruptcy was AIG’s only alternative. That would have wiped out shareholders entirely.

[Phil Angelides, who chaired the Financial Crisis Inquiry Commission] thinks the board shouldn’t consider this lawsuit for more than a minute.

...

AIG issued a written statement today saying it will follow the law and consider the suit. In earlier email to Marketplace, an AIG spokesman declined to comment. Though he did say Thank You."

Source: http://www.marketplace.org/topics/business/aig-thanks-bailou...

If a large shareholder insisted they build a moon base, would they be required to consider that, too?

This is approximately as reasonable.

Consider it, yes. However, how does one define 'consider'? The board looks around at one another, one or two offer negative points against the suggestion, someone calls for a vote and they decide not to do it. 60 seconds from the time the suggestion comes up, it's voted down. I'd say that they "considered" it.

But given lawyers and the unlimited ability for people to just file lawsuits, there's probably a legal definition that entails at the least a few hours "consideration" of such proposals.

/cynic

If a large shareholder insisted that build a moon base, would they be required to consider that, too?

If they owned 51% of shares? Well, er...

Well, yeah.

I think would. Note that considering it isn't the same as carrying it out. Presumably they'd consider the moon base briefly, notice that the cost/benefit ratio is enormous, and decline.

Very misleading it's really Hank Greenberg the Ex-CEO of AIG who ran AIG into that mess in the first place that initiated the lawsuit.

Yours is actually a very misleading comment since Greenberg stepped down as CEO in 2005.

To be even more specific, was forced out of the company at the beginning of 2005 in a totally abusive prosecution by NY AG Eliot Spitzer, who the last time I checked completely failed to get a single big white collar crime conviction.

I find it difficult to believe there's no connection between the government's trashing of AIG's top level management, including their required vetting of the new head, and the failures in risk management that followed.

Were AIG's troubles not well underway by 2005 even if they weren't public knowledge yet? Also if memory serves he was forced out over allegations of illegality in a shady deal AIG made to secretly borrow money from a subsidiary of Berkshire Hathaway to make it look like AIG was in a stronger financial position than they actually were. Also Wikipedia says he was forced out by the AIG board.

> because their former CEO is a huge shareholder and is demanding that they consider it.

Who the fuck is this guy? Patrick Bateman?

Nobody made AIG accept the bailout. They could have walked away.

It's fortunate that even with the short attention spans of today, the word "AIG" is now synonymous with "fuck up".

They should have waited another year or two.

I think the problem is that there's very little overlap people that accepted the bailout and people who are running the company today.

We like to think of corporate entities as these monolithic self-governing decision-making entities, but most likely it's some top executive's knee-jerk reaction to not meeting the 2012 goals that his bonus depended on.

This was on the homepage less than 24 hours ago but from the New York Times: http://news.ycombinator.com/item?id=5024900 — from what I can see they're basically saying the same thing. The whole situation is messed up, if they proceed I'm sure it'll rattle a few birdcages in Washington.

It's a shame the government didn't break up these financial giants when they had the chance. Now they are powerful again and don't care what the government thinks, and they'll continue to lobby against new regulation, and repeat the same mistakes. Then the American citizens will have to bail them out again. And they know this.

That is not what would happen at all. There were a list of buyers both for BoA, Citibank, et al. None of the buyers were american corporations. In fact, there were dozens of banks bought by international banks. They would eventually sell the junk back to the US government under the treat of just defaulting and exploding the US market.

That romantic vision of how the market works is very different from what happens in reality. There were cases where individuals were responsible for the havoc, most are in jail. But, in general, banks were stupid and led by a government desperate for GDP numbers and campaign money.

There is a culprit for the re-insurance and debt re-packaging mess: The american people. Freedom without social responsibility is not freedom, is something close to anarchy.

What role do industry representatives have in writing a huge bill like Dodd-Frank, and the implementation of it after it passes? It was my assumption that industry has a big role in crafting the laws that regulate them.

This is unlikely to change as long as one side is willfully determined to remain ignorant of finance. If you want to write effective regulation, you'll need to understand the industry. Until then, the insiders will continue to run the show.

To balance that out, I would state that neither the regulator, nor the regulatee, really understands finance enough to make arbitrarily accurate predictions of consequences to their actions. They are betting that they understand how the whole market, the rest of the market, or the regulators (regulatees only need consider this) will act in response to information they may or may not possess based on analysis they may or may not be able to justify.

What do you advise the Chinese government should do in regard to bailing out consistently under performing fiscal entities who blame the person lending them money for their financial woes?

Doesn't the government own 92% of the company? How can the company make any decision they don't approve of? Did they buy 92% and have no voting power?

The government now own no shares in AIG, it was paid back in full and with interest. In fact, the US made $18 billion profit from AIG: http://abcnews.go.com/Business/government-makes-177-billion-...

The accusation is that the government used AIG to bail out the rest of Wall Street, forcing AIG to settle trades with big name Wall Street companies for a loss. And on top of that, the gov't charged 14% interest on the money it lent.

Yes, they could have "not accepted" that deal. But there are two sides to this.

Trades that AIG took at fair terms. Sorry, but if an insurer insures something, it better damn well pay what it promised.

Even without reading through the article first, I knew that you were referring to TARP. They might've gotten a "profit" on TARP, but the government gave them a lot more than just TARP, through other programs, and some of the banks even used the money from other programs that they were supposed to use to finance small businesses, to pay back the TARP loan.

Bottomline is, the government may have gotten the money back on TARP, but I think they gave the banks a lot more, and it was a net loss. I mean we didn't even know about the $7.7 trillion the Fed printed to loan to banks in both US and through out the world. Those loans were secret. How do we know they paid them back or not?

Um, thats a misreading of the old Bloomberg report that invented the $7.7 trillion figure. Actual loans appear on the Fed balance sheet. The Fed offered 7.7 trillion in loan guarantees over a period of time, many of which were quickly wound down, which is a very different matter. The Fed currently has a balance sheet of $2.8T: 1.6T is government loans, about 1T are mortgage backed securities from the 2008 crisis.

See http://m.washingtonpost.com/blogs/wonkblog/post/no-the-fed-d...

and

http://www.econbrowser.com/archives/2011/12/777_trillion_in....

I thought there was such a thing as sovereign immunity. How does this reconcile?

Wikipedia has some info:

http://en.wikipedia.org/wiki/Sovereign_immunity_in_the_Unite...

Maybe a lawyer will stroll by and give you a real answer.

i hope there is a special ring of hell for these guys.

Patient survives, sues doctor. Happens all the time.

America, fuck yeah!

These guys need to hire a normal person to sit in their CEO office and say "What the actual *?!" to stuff like this, because they clearly do not understand how normal people see the world.

SECOND REACTION: hmm, so they're only 'considering' it because they have to. Fair enough I guess, crazy shareholders must be a nightmare.

I hope AIG sues the government, and the scandal and political firestorm that results means that similar bailouts become politically impossible for the next 50 years.

Reminds me of the costly executive conference retreat they took after the bailout:

Less than a week after the federal government committed $85 billion to bail out AIG, executives of the giant AIG insurance company headed for a week-long retreat at a luxury resort and spa, the St. Regis Resort in Monarch Beach, California, Congressional investigators revealed today.

"Rooms at this resort can cost over $1,000 a night," Congressman Henry Waxman (D-CA) said this morning as his committee continued its investigation of Wall Street and its CEOs.

AIG documents obtained by Waxman's investigators show the company paid more than $440,000 for the retreat, including nearly $200,000 for rooms, $150,000 for meals and $23,000 in spa charges

http://abcnews.go.com/Blotter/story?id=5973452&page=1#.U...

As the other commenter said, it would actually be pretty dumb to cancel a conference that's already bought and paid for, unless it's for pure CYA PR reasons. I used to work in the meetings and events industry and I can confidently say that the organizers of the AIG conference at the St Regis probably never imagined that it would turn into a PR debacle, because that kind of event is absolutely ordinary. They would not have considered it extravagant at all.

Consider this: you're having a conference for multimillionaire corporate executives and top performers. People who usually work in different locations are coming in to meet together and perhaps bring their spouses for some hobnobbing, strategy talks, and teambuilding exercises. Where do you think they're going to stay? The Motel 6? When you're paying someone a high six figure salary plus bonuses, is it really a scandal to pay $300 for a hotel room?

And by the way, if the rooms "can cost $1000 per night" and you rent out two hundred rooms for your event, if you ended up paying more than $300 per room, you should fire your meeting planner.

Top Performers? These are the executives who didn't just grounded their company, but the whole financial system into a hole.

Events like this are usually not booked last-minute, so "less than a week" is probably a mitigating factor, not a damning one.

And as has been pointed out for like four years now, some parts of AIG were actually profitable, and burning those employees is not a wise long term business strategy.

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