A lot of people are wondering what to think about the news that the board of AIG is considering joining the lawsuit filed by former AIG head Maurice "Hank" Greenberg against the Fed and the U.S. government – a suit that one news outlet describes as charging the state with handing out an "insufficiently generous bailout."
The editorial in today's Daily News captures the public feeling over this confusing news story quite well, I think:
If chutzpah were a crime, Hank Greenberg, American International Group's former chief, would be going away for a long, long time.
Long since driven out of AIG, Greenberg is waging a lawsuit claiming the U.S. hurt the firm's shareholders — including him — when the government rescued the insurance giant with the most humongous bailout of all time.
If you just read the headlines, the story that AIG is considering suing the government for bailing it out makes no sense at all. What could even be the basis for such a suit? One reader asked the question this way: "If a cop bursts into a motel room and stops you just as you're about to blow your head off with a shotgun, can you sue him? If the answer is yes, should I try it?"
Former bailout inspector Neil Barofsky put it this way, in an interview with Bloomberg: "The idea that AIG would have been better off by going bankrupt, for the shareholders is a very, very hard thing to sell, I think."
But here's the funny thing about the lawsuit filed against the government: It isn't all wrong. In fact, parts of it are quite on the mark.
The only problem is, the suit is being filed by maybe the biggest douchebag of all time, Hank Greenberg (and his company, Starr International), a man who has not only been proven to be corrupt and a fraud, but who perhaps more than anyone else was responsible for the galactic balance-sheet goat-fuck that caused AIG's implosion in the first place. If there is such a person as an innocent AIG shareholder who was harmed by the government's conduct, it sure as hell isn't Hank Greenberg.
In fact, since the collapse of AIG was perhaps the most important event in causing the financial crisis of 2008 to spiral out of control, you can put Hank Greenberg on the very short list of individuals who are most responsible for the economic catastrophe. A few weeks ago I put former Countrywide chief Angelo Mozilo, former Lehman head Dick Fuld and Greenberg's former subordinate Joe Cassano (the former head of AIG's Financial Products unit) on that list, but Greenberg should be right there riding the bus of shame with all of those excellent folks.
It's this fact, not the merits of the actual lawsuit, that make this news story so outrageous.
Like all narcissists, Greenberg is physically incapable of admitting any mistake he's ever made, and he's made plenty of them. Among other things, Greenberg in 2000 helped AIG artificially bolster its reserves by green-lighting a phony reinsurance transaction with a company called General Re (a subsidiary of Warren Buffett's Berkshire Hathaway) that puffed up AIG's loss reserves by about $500 million.
Even though a federal judge ruled that Greenberg was a conspirator in that case, and even though that scandal led to AIG in 2006 paying what at the time was the biggest settlement ever ($1.6 billion, paid to Eliot Spitzer's New York state regulators and George W. Bush's Justice Department and SEC), Greenberg has always denied responsibility, and his bumlicking minions in the financial press like Maria Bartiromo are still protesting his innocence long after everybody on Wall Street forgot about the case (that was nineteen billion-dollar scandals ago!).
Moreover, despite the fact that Greenberg personally settled for $15 million in another fraud case that led to a $2 billion accounting restatement by AIG, he's never accepted responsibility for any of his actions there, either. In fact, even after he paid the $15 million in that case, and even after AIG restated its balance sheet to the tune of $2 billion, Greenberg went out of his way to say the restatement was mostly "unnecessary" and that he had "no responsibility" for any fraud. That's just the kind of guy he is.
Why is it necessary to go over all of this ancient history? Because it was these Greenberg-instigated scandals that set in motion the events that led to AIG's collapse later on. When Greenberg was forced out on the heels of the reinsurance scandal, credit agencies downgraded AIG. This and subsequent downgrades are what eventually sank the firm.
How? Well, AIG, under Greenberg's watch, had entered into hundreds of billions of dollars of cosmically stupid credit default swap bets with all of the biggest banks in the world, essentially taking book for all of Wall Street, in many cases taking the wrong side of bets against the mortgage markets, among other things. Greenberg was dumb enough to allow his subordinate Joe Cassano to enter into these contracts, which were written in such a way that if AIG's credit rating were ever to fall, AIG would suddenly owe its customers billions in cash collateral.
When the ratings agencies started downgrading AIG because of anxiety over all of the investigations into the company's accounting, all of those collateral calls started coming due. Before you knew it, companies like Goldman were demanding more cash in collateral than AIG had, and when the company was finally bled dry, that's when the bailout took place.
The AIG bailout was not just a few guys from the Fed and some AIG board members hashing out a deal over lunch. It was hundreds of bankers and lawyers and accountants from many major law firms and big banks swarming all over AIG's books in search of enough cash to stave off the company's collapse. When that army of people couldn't find sufficient money in AIG's coffers, that's when the government stepped in, and this, too, was a major meeting of financial powers, with all the heads of the biggest banks and reams of government officials gathering at the New York Fed to hash out a deal.
The deal they ultimately came up with was genuinely outrageous – the state was to fork over more than $80 billion (it would eventually grow to $182 billion) and AIG's counterparties, like Goldman and Deutsche, would be paid off at 100 cents on the dollar for the bets they laid with the firm. Had AIG proceeded to a normal bankruptcy, companies like Goldman (which got $12 billion from the AIG bailout) would have recovered just a fraction of the money "owed" to them.
This, in part, is what Greenberg is suing about. Among other things, he's saying that the AIG bailout was really a bailout of companies like Goldman and Deutsche Bank, and that left to its own devices, it would have negotiated a better deal than the complete, 100-cents-on-the-dollar surrender that it "agreed" to under the guidance of the likes of Tim Geithner and Ben Bernanke.
Federal Judge Paul Engelmayer gave this dismissive description of Greenberg's suit in a ruling late last year:
To be sure, Starr's Amended Complaint paints a portrait of government treachery worthy of an Oliver Stone movie. Starr claims that, as the global financial system teetered on the brink of collapse, FRBNY seized control of AIG. Then, Starr claims, FRBNY, in an act of Napoleonic plunder, stole AIG's assets, re-distributing some to shore up other flagging financial institutions while keeping much of the residue for itself.
You know what's funny about this? IT'S TRUE!
The Fed, the U.S. Government, and the less-completely-fucked Wall Street powers like Goldman and Barclays and Citigroup absolutely did conspire to seize AIG and then use a monstrous mixture of AIG's assets and public money to keep themselves alive. In essence, AIG was the helpless fat guy in the lifeboat who got eaten when the rest of the survivors ran out of food.
In a vacuum, perhaps, there might be some sort of claim here, and there are ordinary people who worked for AIG who were probably harmed when the state decided not to force companies like Goldman to take even a 1 percent haircut on their CDS contracts with the firm. But Hank Greenberg, the guy who started all of this mess by monkeying with shady reinsurance deals and signing off on the bank's incredibly irresponsible bookmaking during the pre-crisis years, is not the guy to bring that claim.
Even Ben Bernanke was disgusted by the very idea of bailing out AIG, rewarding it for the vast greed and stupidity it displayed during the Greenberg years. Bernanke said the AIG rescue was "the single one that makes me the angriest," because the company had made "all kinds of unconscionable bets."
But it should also have made Bernanke sick to give companies like Goldman and Citigroup 100 cents on the dollar for laying bets with AIG. There are some who have argued that the government was right to make all of AIG's counterparties whole, because it upheld the sanctity of contracts or some such nonsense. This is bullshit, of course. When you enter into any deal with anyone, you have to weigh your risks, including the risk that your bookie, AIG, might implode thanks to its bad accounting and moronic management. AIG's counterparties failed to properly weigh those risks, and they got rewarded for their lack of diligence with the mother of all sweetheart bailout deals.
There are other aspects of the case that are comic in their outrageousness, but like all good comedy, they have elements of truth in them.
One of Greenberg's sour-puss claims is that the government denied AIG access to the Fed's discount window in July of 2008 – in other words, that the Fed didn't simply hand over a bunch of cash to AIG for free to allow it to escape its self-inflicted problems that way, instead of the government essentially taking over the company in exchange for a $182 billion rescue.
This would be ridiculous, were it not for the fact that the government did precisely that for other companies, including Goldman and Morgan Stanley, two investment banks which have been allowed to pose fictitiously as commercial banks for nearly half a decade now so that they could have access to the discount window.
Compared to the expert and loving attentions the government has lavished on the likes of Goldman and Morgan Stanley over the years, throwing money at these similarly irresponsible financial institutions essentially without any conditions at all (as Bloomberg reported, some of Goldman's secret Fed loans in 2008 came with interest rates as low as .01 percent) the take-it-or-take-it takeover/bailout of AIG comes off like a slap in the face, if getting $182 billion of the public's money can ever be seen that way.
Somebody probably has the right to complain about all of this. It just isn't Hank Greenberg. As for AIG, if its board seriously considers joining this suit, they should be tarred and feathered. When a $182 billion rescue isn't enough, you maybe, just maybe, have impossibly high expectations. This would be like Imelda Marcos walking out on Ferdie Bongbong because he didn't buy her enough shoes.
Is anything ever enough with these people?