Perspectives lost

Original post:  June 16, 2015

In the headlines today, a ruling came down from the federal courts. Maurice Greenberg, the former head officer at A.I.G., had filed suit against the federal government. Before we get to the decision, a little history is in order.

During the financial crisis, A.I.G. had mad some spectacularly bad bets on worthless mortgage-backed securities. They were now on the hook for billions of dollars that they could not repay. Several pillars of the financial community like Lehman Brothers and Bear Sterns had already gone bankrupt. The entire US financial market was in disarray. To prevent further damage, the federal government took the unprecedented step of bailing out A.I.G. They extracted a heavy toll by taking over about 80% of the company and charging a hefty 14% interest rate on a loan of about $80 billion. Still, the plan worked. The company never went bankrupt and the shareholders were saved from a total loss.

Mr. Greenberg did not feel that the original action of taking over the company was justified. He sued in federal court for billions more in damages. The ruling yesterday was actually a split decision. The judge did rule that the government overstepped its bounds. At the same time, the judge ruled that there was no financial impairment since the alternative would have been bankruptcy which would likely have resulted in the shareholders getting next to nothing.

There is a quote from Paradise Lost where Lucifer is quoted as saying "Better to reign in Hell, than to serve in Heaven."  It seems like Mr. Greenberg spent millions of dollars to prove that he should have been allowed to drive his company into the dust. Unfortunately, had he been allowed to do so I wonder how many other innocent victims would have followed in the panic that would have likely occurred. I, for one, am glad we did not find out.

Here is a link to the full article in the New York Times: http://www.nytimes.com/2015/06/16/business/dealbook/judge-sides-with-ex-aig-chief-greenberg-against-us-but-awards-no-mon…