CT Blue

What a great country! Beggars can be choosers, provided, of course, that they’re rich enough.

Fresh from paying back a $182 billion bailout, the American International Group 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.”

(via NYTimes.com)

So, this is a bit like a beggar suing a guy who gave him a buck on the grounds that the donation was totally insufficient. In AIG’s case, I’ve always felt we should have averted our eyes when we saw its outstretched hands, but I’m not a Washington wise man.

Apparently the AIG shareholders take the position that having undertaken to bail them out, Washington had a duty to do so in a way that would optimize their financial position, while the silly rest of us thought the government’s duty was to the country at large.

We taxpayers can sympathize in one respect. We can all agree that it wasn’t a good idea to pay 100 cents on the dollar on those credit default swaps, as little Timmie insisted.

The government, Starr argues, used billions of dollars from A.I.G. to settle credit-default swaps the insurer had with banks like Goldman Sachs. The deal, according to the lawsuit, empowered the government to carry out a “backdoor bailout” of Wall Street.

(via NYTimes.com)

Sure, it would have been better for everyone concerned had the government told Goldman Sachs to pound sand, because Goldman had to be well aware that AIG lacked the reserves to pay off the swaps, and it was therefore relying on its (as it turned out well–founded) expectation that the government would step in when the economy blew up, ad Goldman was betting it would. So we can all agree that the country would be better off if Goldman had not been paid, but then that forces us to conclude that we’d be better off had we left AIG to face its fate alone, thereby reducing the stock price to zero. That, presumably, is where we part company with the AIG shareholders.