On Tuesday, Washington was abuzz with murmurs that AIG — the catastrophically managed insurer of untold amounts of Wall Street mortgage debt that required a $182 billion bailout in 2008 — may join a $25 billion lawsuit against the United States government (i.e. the taxpayer) over the terms of that bailout. Outrage — manufactured and genuine — ensued.
The Tea Party crowd will undoubtedly go insane if the AIG board does in fact join Hank Greenberg and Co.'s lawsuit against the government. But a group of congressional Democrats — including Wall Street's least favorite senator, Elizabeth Warren, the always animated Maxine Waters, and three run-of-the-mill House Democrats — were the first leaders to publicly react to the news of the potential lawsuit. It seems that the Democratic lawmakers are surprised that a firm that was so recently saved by the American taxpayer would even consider suing these same taxpayers. This confusion shows how little our leaders have learned about how corporations work.
Our leaders and citizens continue to believe the financial crisis was created by nothing more than immoral, greedy investment bankers. They are mistaken. Indeed, the financial crisis was not caused by a band of irrational, greedy fools, but rather by some of the smartest people in the United States acting exactly as we might have expected them to act had we taken a disinterested look at the incentives the legal and regulatory framework provided them.
That we have not come to terms with this unpleasant reality is underscored by Congress' typically hasty reaction to the crisis. Contrary to the claims of the lawmakers responsible for passing Dodd-Frank, no less an expert than Weil's Harvey Miller, probably the top bankruptcy lawyer in the United States, maintains that the law has not so much as made a dent in the systemic risk posed by financial institutions that were and remain too big to fail.
Of course, despite all of the huffing and puffing going on inside the beltway, DealBreaker's Matt Levine correctly points out that AIG will almost certainly not join the lawsuit. Aside from the fact that doing so would bring an immense amount of bad publicity to a company that is not exactly beloved by the public at large, the lawsuit appears to be a loser. The suit, the brainchild of former AIG CEO and "Master of the Universe" Hank Greenberg, failed before the United States District Court for the Southern District of New York. Greenberg's latest attempt, which is before the Court of Federal Claims in Washington D.C., is unlikely to fare much better. The board, therefore, will probably elect not to join the lawsuit.
But what if the lawsuit did present a real chance of actual recovery for the shareholders? What then? Would it be acceptable for AIG's board to sue the very government that saved it from liquidation? The congressional Democrats who have chimed in so far certainly seem to think not. After ripping into the company and exclaiming that it should be taxed more in the future, Sen. Warren stated that "AIG should thank American taxpayers for their help, not bite the hand that fed them for helping them out in a crisis." Rep. Waters, the ranking Democratic member on the House Financial Services Committee, was even less circumspect, stating that she would "urge the board to drop its consideration of the lawsuit, thank the American public for the $182 billion rescue package that prevented the company's collapse and support the reforms in the Dodd–Frank Wall Street Reform and Consumer Protection Act that ensure that systemically important financial institutions can no longer hold our economy hostage." Finally, and most notably, three Congressional Democrats — Peter Welch, Michael Capuano, and Luis Gutierrez — sent AIG chair Robert S. Miller a letter in which they very thoughtfully state: "Don't do it. Don't even think about it."
Like any taxpayer, I am a bit irked with the possibility that after having bailed out AIG, the U.S. government might also have to defend a lawsuit against the company for not being generous enough.
Read more: AIG, greed, and legislative stupidity - The Week
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