Fresh from paying back a $182 billion bailout, the American International Group Inc. has been running a nationwide advertising campaign with the tagline “Thank you America.”
Behind the scenes, the restored insurance company is weighing whether to tell the government agencies that rescued it during the financial crisis: thanks, but you cheated our shareholders.
The board of A.I.G. will meet on Wednesday to consider joining a $25 billion shareholder lawsuit against the government, court records show. The lawsuit does not argue that government help was not needed. 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.”
Maurice R. Greenberg, A.I.G.’s former chief executive, who remains a major investor in the company, filed the lawsuit in 2011 on behalf of fellow shareholders.
I'm no expert, but there are a couple of things I find interesting - and puzzling - about that.
But first, here's a brief review, if you need it. In the fall of 2008, AIG found itself in trouble. (Note that Greenberg had run the company - the U.S. part of it - since 1962, but he'd been fired in a fraud scandal that preceded the collapse by three years. You can decide for yourself how much responsibility he bears for this whole fiasco.)
The main problem was that Lehman Brothers had gone bankrupt - the largest bankruptcy in American history - thus putting other financial institutions under a microscope. Guess what? It turned out that they hadn't - as the Republicans had promised us - been very good at 'self-regulating.' Just the reverse, in fact. They'd invested in collateralized debt obligations and other arcane financial instruments which were plummeting in value.
And so the dominoes of our entire financial industry were starting to tip over. That's why the Bush Administration stepped in with their notorious "bailout." There really wasn't much choice (although there were choices in how to go about it, of course).
Now, under ordinary circumstances, a company can go bankrupt without causing huge problems for most people - except for the owners, of course. Frequently, the company can stay in business, or be sold to another company, so that even many of the employees can keep their jobs. The stockholders, though, frequently lose their entire investment and, almost always, bondholders take a loss, as well.
But these weren't ordinary times. This was the end of the Bush years, when we discovered that everything the Republicans had been telling us was not actually true. Tax cuts for the rich hadn't resulted in a booming economy, but rather a financial bubble (and massive debt). Lehman Brothers was already the biggest bankruptcy in American history, and we weren't worried about losing another business but the entire financial industry.
If that had happened, we'd have seen an even worse collapse than the Great Depression of the 1930s. So the government stepped in with that "bailout" - which wasn't actually a bailout of the shareholders, but only a bailout of the corporation itself, and its employees. The shareholders lost almost everything (though not as much as they would have without government help).
Now, here's what I don't understand about this latest news. Greenberg had run the company for almost 40 years, so he was a huge shareholder in AIG. Sure, he'd been fired - and is still facing fraud charges, apparently - but that doesn't mean anything to CEOs in the biggest corporations. Unlike low-level employees, you're not required to do a good job, since you keep your stock options and your "golden parachute," no matter what.
And it's Greenberg who filed this suit (in 2011). He's just trying to get AIG to join him:
The choice is not a simple one for the insurer. Its board members, most of whom joined after the bailout, owe a duty to shareholders to consider the lawsuit. If the board does not give careful consideration to the case, Mr. Greenberg could challenge its decision to abstain.
"Most" of them joined the board after the bailout. Ha! I think it's bizarre than any of them were allowed to keep their job, but I guess it's not just CEOs who don't have to do a good job, huh?
But wait a minute! The board of directors owes a duty to the shareholders, yes, but that's a duty to the current shareholders. The shareholders who owned the company in 2008, who would have lost everything if the government had not stepped in, still lost 92% of the company, apparently. And the government has since sold its share to new shareholders. Those people haven't lost a thing.
So why would the board even consider joining a suit on behalf of 8% of the corporation's owners (much less than 8%, likely, since many of them have almost certainly sold their holdings)? If those people want to sue, that's their business. But why would the new AIG even think about getting involved in that? The overwhelming majority of their shareholders bought shares in the company after all this happened.
Furthermore, the government didn't force them into anything. The Bush Administration was trying to help the company, and the board of directors was eager for that help. They voted to accept the offer! (That initial offer resulted in the government owning 79.9% of the company, but AIG continued to have problems - as our economy continued to collapse - and by the time Barack Obama took over, the government owned 92% of the company. Now, of course, the company is entirely private again.)
So why in the world would the AIG board of directors even think twice about this? Why would they be considering it, even for an instant? Aren't they supposed to act with the shareholders in mind? Well, the current shareholders have nothing to complain about. (And why isn't Greenberg suing the board of directors who agreed to the bailout, instead of the government which offered it?)
I'm wondering if this is another result of that "corporations are people" bullshit from the GOP. Thanks to the Republicans on the Supreme Court, corporations are supposed to be "people" now. They can't vote - not yet, at least - but they can donate unlimited amounts of money to elect their own politicians.
Of course, corporations can't do... anything, not really. It's the people running the corporations who do all that. Technically, those people are supposed to be working for the shareholders, the people who actually own the company, but that's not how it usually works. Heck, when they make political donations, they don't even have to tell the shareholders about it (or the corporation's customers or the IRS, either - not where the money went, certainly).
"Corporations are people" is just a legal fiction. But is that what we're seeing here? Is the board of directors thinking of suing on behalf of the corporation itself, even though the corporation is owned by new people now, people who don't have any claim here at all?
Of course, it was the corporation's board of directors which agreed to the government's terms, so if they didn't want the bailout under those terms, why did they agree to it? True, they didn't have much choice. But that's just because they needed the bailout. They would have lost everything without it!
The whole thing is absolutely crazy, don't you think? Meanwhile, AIG is still running that "Thank You America" advertising campaign. Heh, heh. We're down the rabbit hole here, I think. :)