The insurance industry has long protested about “frivolous lawsuits” which allegedly clog the court system and drive up insurance costs. AIG is a big part of that industry. In fact, it is the largest insurance conglomerate in the world.
Given that, it’s ironic that the former CEO of AIG is pursuing what most people would consider the most frivolous lawsuit imaginable: a claim against the federal government arising from the federal government’s successful bailout of AIG.
That’s right. Hank Greenberg, who was forced out as AIG chairman in 2005 over various financial frauds, is suing the feds for successfully bailing AIG out during the 2008 financial crisis. Greenberg, who still held huge amounts of AIG stock even after he was fired, thinks the value of his AIG stock suffered too much when the government saved the value of AIG stock.
To understand this story, one has to go back a few years. Before the great recession, AIG was a relatively stable and financially conservative insurance business. Unfortunately, AIG couldn’t resist the temptation to try and make easy money by insuring risks associated with mortgages and other flimsy assets. AIG insured so many bets stemming from dubious assets that it didn’t have a fraction of the money it needed to actually pay on those bets.
Those bets went spectacularly bad, of course, and AIG was left holding the bag. In late 2008, it was facing immediate financial ruin. In fact, it was on the verge of filing for bankruptcy when the government agreed to be a “lender of last resort.” The government held its nose and agreed to step in because it felt a collapse of AIG would further damage the world financial system.
As part of the bailout package, the government required AIG to provide it with an 80-percent share of AIG stock. That was a no-brainer at the time. AIG was so far in the red that if the bailout didn’t happen, AIG’s stock would have become worthless anyway. Furthermore, the terms the government offered to AIG were the exact same termsproposed by AIG to private lenders when it went to them begging for a bailout in the same time period.
Now, in better financial days, Greenberg is suing the federal government over the terms of the bailout the government wasn’t required to provide. He claims it really wasn’t legal and fair for the government to get AIG stock as part of the bailout deal. He seeks $23 billion for himself and other AIG shareholders for the value of the stock the government took. Again, this is the same stock that would have been dead worthless if the government hadn’t saved AIG’s bacon.
This type of hypocrisy reveals what the term “frivolous lawsuits” really means. The term is really just code for a lawsuit brought by the wrong type of people. There are no frivolous lawsuits for fabulously rich and powerful people. They can pursue any type of claims they want – including those which make a normal person’s blood boil.
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