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Plutocrat’s Lawsuit Leads Unlikely Path To Transparency On AIG Bailout

The US Justice System is generally run for the rich which makes achieving justice against the rich rather difficult. But thanks to an aggrieved rich person in the form of former AIG CEO Hank Greenberg the world may finally learn the details of the AIG bailout. Though the absurdity of the case Greenberg is bringing is quite obvious (that he got mistreated by the feds), former Treasury Secretary and New York Fed Chairman Tim Geithner will be forced to testify as to how one of America’s sleaziest Wall Street bailouts went down.

To catch everyone up – AIG recklessly bet on the housing market never going down by insuring mortgage securities in the form of credit default swaps (CDS) it never planned to cover. When things were good in the mortgage market AIG pocketed the cash for the swaps, when things went bad AIG went bust and the US taxpayer bailed them out at 100 cents on the dollar.

That 100 cents on the dollar part has always left a bad taste in everyone’s mouth especially when it become clear that part of the reason AIG was getting such an amazingly generous government bailout may have been because part of the funds would be going to AIG’s counter-parties – Goldman Sachs, JP Morgan, and other Too Big To Fail politically-connect banks.

TNot surprisingly, the public was furious at the idea that the very people and organizations that caused the financial crisis got sweetheart deals from their cronies in Washington and suffered no financial penalty. Geithner has claimed that he made the terms so generous because he feared what would happen if he asked for a reduction in price or a “haircut,” that the markets would panic. If you don’t find that argument convincing you aren’t the only one.

Greenberg’s case concerns the firm he started after being ousted as CEO of AIG by Eliot Spitzer, Starr International Company Incorporated. Starr was a major owner of AIG shares and is claiming the government unjustly seized its shares of AIG to do the bailout –  a bailout that made Starr/Greenberg hundreds of millions of dollars.

[A]s asinine as the Starr suit may be in legal terms, it may end up serving a constructive purpose. Among Starr’s key claims is that a chunk of the roughly $180 billion the government eventually poured into A.I.G. was unnecessary, at least if the point was to save the insurance giant. In practice, tens of billions went out the door to other financial institutions, like Goldman Sachs and Deutsche Bank, whose risky mortgage securities A.I.G. had foolishly insured in the run-up to the crisis…

At the heart of the controversy is the fact that the government has never provided a plausible explanation for why the Federal Reserve Bank of New York, which had enormous leverage over banks like Goldman thanks to its role as their regulator, didn’t lean on them to accept less than 100 cents on the dollar in their payouts from A.I.G.

So Greenberg is not a particularly sympathetic figure, especially for the left. Yet, the lawsuit he is pursuing may finally get to the bottom of what happened when federal officials decided to hand over the public treasury to Wall Street. It probably won’t be a pretty picture but it is certainly one worth looking at.

CommunityThe Bullpen

Plutocrat’s Lawsuit Leads Unlikely Path To Transparency On AIG Bailout

The US Justice System is generally run for the rich which makes achieving justice against the rich rather difficult. But thanks to an aggrieved rich person in the form of former AIG CEO Hank Greenberg the world may finally learn the details of the AIG bailout. Though the absurdity of the case Greenberg is bringing is quite obvious (that he got mistreated by the feds), former Treasury Secretary and New York Fed Chairman Tim Geithner will be forced to testify as to how one of America’s sleaziest Wall Street bailouts went down.

To catch everyone up – AIG recklessly bet on the housing market never going down by insuring mortgage securities in the form of credit default swaps (CDS) it never planned to cover. When things were good in the mortgage market AIG pocketed the cash for the swaps, when things went bad AIG went bust and the US taxpayer bailed them out at 100 cents on the dollar.

That 100 cents on the dollar part has always left a bad taste in everyone’s mouth especially when it become clear that part of the reason AIG was getting such an amazingly generous government bailout may have been because part of the funds would be going to AIG’s counter-parties – Goldman Sachs, JP Morgan, and other Too Big To Fail politically-connect banks.

Not surprisingly, the public was furious at the idea that the very people and organizations that caused the financial crisis got sweetheart deals from their cronies in Washington and suffered no financial penalty. Geithner has claimed that he made the terms so generous because he feared what would happen if he asked for a reduction in price or a “haircut,” that the markets would panic. If you don’t find that argument convincing you aren’t the only one.

Greenberg’s case concerns the firm he started after being ousted as CEO of AIG by Eliot Spitzer, Starr International Company Incorporated. Starr was a major owner of AIG shares and is claiming the government unjustly seized its shares of AIG to do the bailout –  a bailout that made Starr/Greenberg hundreds of millions of dollars.

[A]s asinine as the Starr suit may be in legal terms, it may end up serving a constructive purpose. Among Starr’s key claims is that a chunk of the roughly $180 billion the government eventually poured into A.I.G. was unnecessary, at least if the point was to save the insurance giant. In practice, tens of billions went out the door to other financial institutions, like Goldman Sachs and Deutsche Bank, whose risky mortgage securities A.I.G. had foolishly insured in the run-up to the crisis…

At the heart of the controversy is the fact that the government has never provided a plausible explanation for why the Federal Reserve Bank of New York, which had enormous leverage over banks like Goldman thanks to its role as their regulator, didn’t lean on them to accept less than 100 cents on the dollar in their payouts from A.I.G.

So Greenberg is not a particularly sympathetic figure, especially for the left. Yet, the lawsuit he is pursuing may finally get to the bottom of what happened when federal officials decided to hand over the public treasury to Wall Street. It probably won’t be a pretty picture but it is certainly one worth looking at.

Photo from White House under public domain.

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Jane Hamsher

Jane Hamsher

Jane is the founder of Firedoglake.com. Her work has also appeared on the Huffington Post, Alternet and The American Prospect. She’s the author of the best selling book Killer Instinct and has produced such films Natural Born Killers and Permanent Midnight. She lives in Washington DC.
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