Politicians reeking of chutzpah denounce AIG chutzpah
The poster child for chutzpah leads the fight against AIG’s exercise of its legal rights
AIG is considering whether to join a lawsuit arising out of the bailouts.
It’s only at the consideration stage, as reported by The Wall Street Journal:
Most of American International Group Inc.’s directors began Wednesday’s board meeting leery of supporting a controversial lawsuit that accuses the U.S. government of taking advantage of the company in its rescue from the financial crisis, according to two people familiar with their thinking.
The suit was filed last year in a federal claims court by Starr International Co., the company headed by AIG’s 87-year-old former chief executive, Maurice R. “Hank” Greenberg, and seeks $25 billion in damages for AIG and its shareholders. Starr requested that AIG join it in pursuing the claims, and the insurer’s board agreed to hear presentations on the suit during Wednesday’s meeting.
News of AIG’s consideration of the matter, which surfaced Monday evening, unleashed a torrent of criticism about the big insurer’s perceived ingratitude toward taxpayers for the massive rescue effort, one of the biggest of the 2008-09 crisis.
As further reported in the WSJ article, the mere consideration by AIG whether to join the lawsuit has various politicians warning AIG not even to think about it, that it would amount to “corporate ingratitude and chutzpah.”
So?
Since when has chutzpah been out of favor in politics? Washington, D.C.’s economy — one of the strongest in the nation — is built on chutzpah.
As Victor Davis Hanson ably documents, the liberal establishment got rich on chutzpah, The New Liberal Aristocracy::
Take former vice president Al Gore. He has made a fortune of nearly a billion dollars warning against global warming — supposedly shrinking glaciers, declining polar-bear populations, and the like — while simultaneously offering timely remedies from his own green corporations, all reminiscent of the methodology of Roman millionaire Marcus Licinius Crassus, who profited from fires and putting them out. Now Nobel laureate Gore has sold his interest in a failing cable-television station for about $100 million — and to the anti-American Al-Jazeera, which is owned by the fossil-fuel-rich royal family of Qatar. Gore rushed to close the deal before the first of the year to avoid the very capital-gains tax hikes that he has advocated for others less well off. That’s a liberal trifecta: enhancing a fossil-fuel consortium, attempting to beat tax hikes, and empowering an anti-American and anti-Semitic media conglomerate run by an authoritarian despot — all from a former vice president of the United States who crusades for ending our reliance on fossil fuels and for raising taxes on the wealthy.
Elizabeth Warren, who falsely claimed to be Cherokee for employment purposes and who refuses to release the records much less apologize, is furious that AIG might seek to exercise its legal rights.
This is the same Elizabeth Warren who amassed a roughly $15 million fortune railing against corporations that allegedly don’t pay their fair share in taxes as she worked for a tax exempt corporation, Harvard University. But for Harvard’s special tax breaks, and the special tax breaks of every employer Elizabeth Warren has had since the 1970s, Elizabeth Warren could not have been paid such exorbitant salaries, while giving her a launching pad for her private legal practice. The cheapskate even obtained a fee waiver for access to the federal PACER electronic docket system because she was an academic, even though she had millions in the bank. There is no one who exudes chutzpah more than Elizabeth Warren, yet she is making political hay with AIG even considering whether to join the lawsuit.
All of this was predictable and predicted when the bailouts of AIG and others took place.
When government is here to help, to paraphrase Ronald Reagan, there always is a price to pay.
In this case, the price is a request to forfeit sharedholders’ legal rights for corporations, and a loss of liberty for the politically unpopular. We don’t hear these recriminations when individual beneficiaries of the welfare state, who receive individual bailouts every day, sue for more. The outrage against AIG is the triumph of politics not the rule of law
I don’t know if the pending lawsuit has any merit. But if it does, then AIG should do what is best for its shareholders, and stick its thumb in the government’s eye. After all, the government doesn’t hesitate to stick its thumb in our eyes just because it can.
DONATE
Donations tax deductible
to the full extent allowed by law.
Comments
Chutzpah…
Example: “It’s different when we do it”.
I think I read somewhere that Dizzy Miss Lizzy Warren has chosen not to call herself the first woman of some Native American heritage in Congress.
It would disappoint me to no end if, when Professor Jacobson eventually becomes a member of Congress, he didn’t proudly and openly proclaim himself to be the first half-black, half-orange Jew elected to Congress.
LukeHandCool (who, speaking of chutzpah, has a Japanese wife who has chutzpah in spades, and when she harangues Luke with, “You’re smart! Why can’t you be successful like these other husbands?” referring to the ultra-successful professionals in the area, Luke shyly explains that smarts is not usually enough. “You also need at least a little bit of chutzpah, Honey. Like you’ve got. I don’t have it. How about I stay at home, and you go out and work?”)
The reporting on this story is just horrendously awful in explaining what is actually going on. Having formerly held a NASD license (now FINRA), and some background in Business Securities & Tax Planning, I can somewhat read between the lines.
The FORMER Shareholders of AIG (including some execs) are suing the federal government for the fact that they got screwed by the bailout terms, far worse than they would have gotten had AIG been allowed to declare bankruptcy. Some of them had different classes of shares (preferred) which would have actually had more value in being able to be converted to a “secured” interest (basically a type of bond, instead of a corporate share). Those shareholders have a legal right to the suit on behalf of AIG if AIG is unwilling to bring the suit (it’s a shareholder derivative action).
This, however, puts AIG between the rock and the hard place. If they fail to join the suit, AIG doesn’t share in the recovery if the shareholders bringing the action win, and thus AIG itself can then be sued by it’s CURRENT shareholders as a class action for failing to protect their interest (business judgment rule be damned). If AIG does join the suit, they have to deal with the demonizing from Congress.
Oh, wait. Congress is going to demonize them anyway.
In all seriousness, AIG actually doesn’t really have a choice. If they fail to join, they’re going to be eating a class action lawsuit from their own investors, which will likely be more expensive to defend than just joining the current suit.
1. Thanks for that very pertinent comment, Chuck.
According to the online MSM, all AIG shareholders would have been wiped out in bankruptcy if not for the bailout. I had been viewing the shareholders’ behavior as akin to a swimmer’s who sues his lifeguard for breaking his arm while saving him from from drowning.
You haven’t convinced me the suit should go forward, either by the investors or by AIG, but you’ve made me pause for thought. Thanks again.
2. As for the post: I have high respect for our host and it’s perilous to take issue in his specialty of securities law. Nevertheless, I note that Bill Buckley used to repeat:
Perhaps I should clarify. I wasn’t taking issue with Prof. Jacobson’s reporting on the issue. Rather I was commenting on the Main Stream Moron’s coverage of the suit, which has been wholly deceptive by leaving out key facts about whom is suing whom and on what grounds. Of course if the MSM decided to do their jobs and actually explain what is going on like newsmen of old, the public would likely be far less incensed about this suit, and the Democrat Congressional members wouldn’t get to grandstand.
Yes, pertinent and interesting.
Useful factoid for conspiracists: both Al Gore and Maurice have the same lawyer, David Boies (late of Microsoft fame).
Which prompts me to guess that folks should take Greenberg’s play more seriously. “Hank” was forced out of AIG by the board in 2005 after Eliot Spitzer leveled a battery of “fraud” charges against him, criminal and civil, and using his favorite tactic against the company, that is, threatening to charge the company too. Spitzer’s modus operandi was to bully companies into settlements with such threats. Companies almost always prefer to settle and pay money than to fight and be dragged through bad headlines for years. So what happened to the supposedly serious charges against Greenberg after Eliot got his fresh scalps? The criminal charges were dismissed for lack of proof. Two if six civil charges were also dismissed, and the rest have never come to trial.
I have no admiration for Greenberg, but people should be wary if media commentary about him: most reporters still recount the fraud charges against him, fail to mention what became of them, and insinuate that they had something to do with AIG’s big bets in insuring MBOs, which they didn’t.
Also, it’s noteworthy that Greenberg did not start complaining about the supposedly onerous terms of the 2008 bailout yesterday. He loudly made the same complaint in 2008, pointing out that the bailout was really intended to pass money through AIG to bail out Goldman Sachs and other banks who were in his view perfectly aware of the risks of what they were doing.
The interesting thing about both these stories is, to paraphrase Romney, corporations really are people: without Gore’s propping it up with his celebrity and connections, his cable channel surely would never have been a viable business now marketable for $500 million; and AIG was literally created from nothing by Hank Greenberg, who unsurprisingly refuses to go away long after being ousted as Chairman/CEO of his creation so the company could escape the wrath of Eliot Spitzer back when Spitzer was riding high as “the Sheriff of Wall Street.”
And Greenberg’s complaint remains intensely personal. Under his stewardship, AIG grew and prospered, and he was not party to its crazy gambling, so he’s generally pissed and out to stick it to the current board and management. At the same time, he was AIG’s biggest shareholder at the time of the 2008 when the Fed lent the company $85 billion in exchange for 80% of the equity — which dramatically diluted the value if his shares. He’s still the largest shareholder and as such can force the company at least to consider joining his lawsuit, because of its fiduciary duty to shareholders.
And here’s the good news for Hank: If the company joins, he’ll have won his point and potentially down the line, a lot of money. If the company refuses, he can still bring a shareholder lawsuit against the company charging various violations of its fiduciary duty — and he’d have enough of a case that the company likely would settle for a nice pot of money instead of litigating these issues and opening itself to one fascinating mountain of disclosure.
The AIG board has decided not to join the lawsuit. Hyperlinks to the news are very easy to find.
Yep. I saw that. Here’s what it means: Greenberg’s suit is going forward on it’s own (via Starr International Co.). If I read correctly (elsewhere) the suit already survived a dismissal motion, which is a pretty big initial hurdle. If Greenberg wins, AIG is going to eat a derivative shareholder suit from its other, non-suit participating shareholders for the value that they would have received but for AIG’s refusal to participate in the suit.
It’s going to take some time, likely two to three years if not longer, but when it happens, it’s going to be ugly, especially if Starr manages to get the full $25 Billion they’re demanding, and the other AIG shareholders come looking for their pound of flesh.