Surely the problem with their argument is that when they were bailed out they did have a choice; it was either accept the terms or go under. So if they accepted the govts terms, why should they now be allowed to argue they got ripped off.
Would you accept this reasoning for any deal? Because there are many folks now that claim banks tricked them into accepting unfair deals - even though they were perfectly free to deny these terms and reject the deal. There are many other situations where you can be offered an unfair deal and still be able to sue even if it's voluntary transaction - e.g., if you are offered to be hired and because of your race, your employer says you'd be getting 10% less salary. If you don't like it, you can reject the job, nobody's forcing you. But the law still says offers like that are not legal. So the notion that there's a choice does not always mean the deal is OK. Obviously, the concept that if they had a choice, they cannot argue they were wronged does not work in current law. Why deals with the government should be an exception? The AIG may be indeed wronged or may be they are full of it, but unless you reject the whole legal tradition that there can be unfair deals, that needs to be figured out looking at the facts and can not be rejected just because they agreed to it.
There's a bit of a difference between offering a higher interest rate to someone who just ran their business into the ground (and needs a bailout to survive) and racism. Lenders take creditworthiness into account all the time. I'd have to image destroying your company, with your only other alternative being bankruptcy, as being a valid reason for having a higher than normal interest rate. There's certainly some risk there, and there isn't anyone who was going to come along and bail out the government if their bailout money was lost by AIG.
There was a greater than 0% chance that the government would end up with 0$ (losing everything they "invested"). In order for them to agree to take on that risk, they needed a suitable interest rate in return. At the time the deal was made, comparable "junk" bonds were at or above that interest rate. It's just the return that investors want for such a risky investment. It's not at all like racism.
There is a difference, of course. However, if you accept the voluntary deal can be unfair, then only consistent way to treat it would be that any voluntary deal could be unfair. Otherwise you are basically saying "it's unfair only if I don't like the guy who's benefitting, but if I don't like the guy who's getting the short end of it, that's fine". You can not bring voluntarity as objection and at the same time accept that some voluntary deals can be unfair.
>>>> In order for them to agree to take on that risk, they needed a suitable interest rate in return.
Of course. Nobody doubts that and nobody claims the money should have been provided for free. What is argued is the conditions were unfairly onerous. This may be pure bullshit and conditions might have been just fine, but voluntarity does not prove or disprove it, it is irrelevant once you accept, as US law does, that voluntary deals can be not OK. You can not have one without the other.
The examples you've given for voluntary deals not being OK were for protected classes. There's no such protections for companies who have run their company into the ground and need a bailout. Agreeing to a deal, no matter how onerous the contractual requirements is perfectly legal if you're not a protected class, and AIG was not a protected class.
Even given that, a 14% interest rate and being asked to pay back contractually obligated debt don't seem to be onerous. Companies (and individuals) with poor creditworthiness are asked to do that all the time. It's certainly not a historically onerous agreement, and it's in-line with the returns investors were seeking for similarly risky investments at that time.
So what you are saying some people are better than others and have preference before the law because they are "protected class" and since AIG shareholders do not belong to this class the law and fairness works differently for them. I see.
This really makes my blood boil, but I'm trying to remain impartial while reading.
The highlight of the article:
> Judge Paul A. Engelmayer wrote that while Starr’s complaint “paints a portrait of government treachery worthy of an Oliver Stone movie,” the company “voluntarily accepted the hard terms offered by the one and only rescuer that stood between it and imminent bankruptcy.”
Sure, the terms might have seemed "unfair" but what could they possibly expect? It was "accept some harsh terms for royally screwing up or go under." It's not like they were some innocent bystander; they made some really stupid decisions and paid the price.
Side note: those "thank you" commercials feel so terribly disingenuous;
Normally companies make money by providing a product or service. Granted, that's something AIG wasn't very good with lately, but I'm not sure suing the government for money is a sustainable business model.
The main problem seems to be that litigation in court is lucrative in the American system. It's not just righting something wrong, to cover ones damages, it's about making money you couldn't make otherwise. And that's when suing becomes a business model.
It's amazing to me how the USA is still so innovative despite that legal insecurity.
I agree with the emotion but I can also see the argument that the agreement was made under duress.
If you are about to die and the only person who could save you, offers to do so, but asks you to agree to something reprehensible in exchange for saving you, what do you do?
At the risk of creating a strawman (the goal is illustration not substitution) let us construct a scenario, you're hanging by a rope which is breaking, you have maybe 10 minutes before it breaks. And the only person who can save you says, "Ok, I'll save you on the condition that in the near future I will come to you and ask you to do something for me, and you must agree to do what ever I ask."
What if your savior asks you to blow up an airplane? Or sell your spouse into the sex trade? or any of a dozen things you would never do voluntarily and are counter to your values. This is the kind of thing that novelists use to create tension, its very effective.
So AIG claims here that the Government went too far in its ask, and has crossed some line into moral turpitude. Who is the bad guy? the good guy? Doesn't really matter though, its one of those chickens they talk about that come back to roost. Never a good thing.
Actually, it's more like a guy who just conned your family out of their life savings is hanging by a rope, which is breaking. You don't feel inclined to save them, but unfortunately, they're hanging over a crowd of innocent bystanders. You agree to save them, mostly so that the others are not injured. While you do, you make them agree to give back all of the money they stole under shitty terms. They do so by screwing over the guys who helped them pull the con job, who are now coming to you asking for their share of the money they stole from your family.
I like it! Ideally that will come out in court (should it go to trial, although I consider that unlikely). Someone should make a Matrix spoof where the kid at the Oracle's house says,
Boy: Do not try and recover the money. That's impossible. Instead only try to realize the truth.
Neo: What truth?
Boy: There is no money.
Neo: There is no money?
Boy: Then you'll see that it is not the banks that are broke, it is only yourself.
This is standard operating procedure on the internet: everyone who wears a suit is a parasitcal criminal.
Back in reality, most banks have paid back their TARP funds, as did AIG, generating a hefty return over 3 years to the Treasury. You know what bailout is still significantly in the red? The auto industry. But we hear little about that because those guys don't work on Wall Street.
In all fairness, I do not remember "the auto industry" almost bringing the whole capitalistic system (and with it our Western world) close to a grinding halt, according to what we were lead to believe, in the last 5 to 10 years. And after the gang-rape that GM did over here in Germany and continues to do now, oh yes you do hear about them here.
> a suit is a parasitcal criminal.
From what I have seen, the average folks still buy into the opposite extreme where every suit and especially every banker is some sort of god-like being, far removed from our mere mortal realm and surely a gravely respectable person, much more so than the average Joe. Quite frankly, I find the extreme prevalent on the internet to be far more beneficial because it moves things into a direction where the strange money-fetish has to make way for a more realistic view of this profession so prone to scams, frauds, "gamblings", cut-necks and other shenanigans. It will hopefully help people to view a bank not much different from some regular store, a place offering a service, regardless of dress code.
Also, I do not think the auto industry runs Stasi-like intelligence operations where they constantly collect and pool your most private and financial information and credit ratings and use all that to evaluate how they are going to deal with and sell to you - or potentially put you out on the street.
As someone unfortunate enough to be working in IT in this "parasitic" industry I cannot see this industry getting hit and dis-credited hard enough after they have repeatedly gotten away with much more than murder over decades. There is no reason other than money that anyone works in this and it cannot be a coincident that they pay much more than a lot of other industries; and I don't think there are a lot of other industries with a more backward, pre-history corporate and work culture.
>"In all fairness, I do not remember "the auto industry" almost bringing the whole capitalistic system (and with it our Western world) close to a grinding halt"
I don't care about "could haves". These industries were all bailed out; some returned a profit to the taxpayers, some are still in the red without a chance of paying any of it back. Yet we continuously denigrate the industry that paid the money back as the "criminals".
>"From what I have seen, the average folks still buy into the opposite extreme"
Really? You must be living in a different world than I am. Just skim this thread, or any thread on Reddit...
>"Also, I do not think the auto industry runs Stasi-like intelligence operations where they constantly collect and pool your most private and financial information and credit ratings and use all that to evaluate how they are going to deal with and sell to you - or potentially put you out on the street."
Banks aren't planning to put you on the street. Where does this come from? Banks want to lend money and be paid back, with interest. This whole debacle worked out really well for them. They only had something like 3 trillion wiped from their collective balance sheets.
By the way, the auto-industry parents run huge financial companies.
>"it cannot be a coincident that they pay much more than a lot of other industries"
"In all fairness, I do not remember "the auto industry" almost bringing the whole capitalistic system (and with it our Western world) close to a grinding halt, according to what we were lead to believe, in the last 5 to 10 years"
Their finance departments were used for much more than car loans.
I seem to remember a number of them didn't need to take the funds, but were arm-twisted into it so that it would look like a general national problem as opposed to bailing out some well-connected (yet incompetent) cronies.
It wasn't about cronyism: they couldn't "bail out" specific, failing banks or else it would be obvious to stakeholders where the "bad" banks were. Every bank that would have received funds under these circumstances would be susceptible to a run. It was a crafty play, done against the will of the some of the banks.
The industry needed an infusion of cash, and they spread it around a bunch of the biggest players.
The bad banks got to hide behind the good banks, the good banks can't possibly win under such a scenario, since they get lumped in as "the banks" by the masses that don't care about specific behavior but craft their ideas based on "industry".
Ford ticked up after not taking a handout, larger well governed banks had no such opportunity.
Deposits up to $100K (or thereabouts) were insured by the FDIC, so even under a run, the savers in the bad banks were not going to be left high and dry; and perhaps wiser about where they put their money in the future. Perhaps the Federal Government didn't want to see the FDIC invoked.
Instead, a precedent was set; bad behavior was not punished (by way of market action), and good behavior is tainted by association (via political demonizing).
Not exactly. The key thing you're missing is that AIG weren't actually the main beneficiaries of the AIG bailout, the people who bought CDSs from them were. Effectively, a bunch of other companies convinced AIG to to sell them insurance for way less than it should cost, in many cases on property they didn't actually own, by conning them as to how risky it would be.
To continue the metaphor, it's like if a guy conned your family out of their life savings, and then the Government generously seized your home in exchange for paying the guy who scammed you the rest of the money you owed him which you couldn't afford to pay.
AIG isn't a company run by widows and orphans. The department that issued that insurance was full of the most stereotypical Wall Street shark assholes around, who thought they were smarter than everyone else and getting a big free payday. They got scammed in the way a casino scams the idiot wearing sunglasses at the craps table.
Yes, the government bailout of AIG went towards paying off their counterparties. But those were actual debts that AIG owed because of their own stupidity and greed. Had AIG gone bankrupt instead, the counterparties would not have received anywhere near full payment, and there's a compelling case to be made that that's how it should have been. But this idea that AIG somehow got screwed by having to pay off their shitty bets with our money is laughable and disgusting. If the shareholders want to sue someone, it should be their own board.
By that standard you must also reject legislation that limits interest rates charged by payday loan shops? It is very much the same situation: What is a reasonable interest rate for a loan made to someone or some corporation under duress?
legislation that limits interest rates charged by payday loan shops
If the government were a payday loan shop and gouging thousands of independent companies everyday, your analogy would hold water. Till then, this is merely a straw-man argument.
Guess who owned most of the AIG shares that were diluted as part of the Government bailout, though? It certainly wasn't the guys that were running the shop - it was your pension scheme, and everyone else's pension scheme.
Also, I got my analogy wrong. It would be more like if the Government seized 92% of your house in exchange for loaning you the money to pay off the scammer with interest, which they knew you could repay.
Even after the massive swindle, AIG's problem was liquidity and not insolvency - they had enough assets to repay everyone and if they'd actually gone bankrupt, the shareholders may well have come out better in the end, but their counterparties would've been screwed because they'd have had to have waited for the bankrupcy proceedings to get paid.
Except that bankruptcy (particularly corporate bankruptcy) is hardly as permanent as death. And no-one making decisions at AIG was personally on the hook for remotely that level of responsibility.
Conflating their position with calamitous death seems borderline disingenuous. You're soliciting emotional reactions to an unforeseeable emergency. But AIG was in a situation that years of rational business decisions put in the cards. They not only should have known it could happen, but they'd also know that their gains from having done it far outweighed the personal potential losses.
Which is almost certainly why the gambles were made in the first place and puts the lie to any analogy to human desperation in a split-second survival scenario.
If you review the situation with AIG, the only available bankruptcy option available to AIG was Chapter 7, aka liquidation. There was no scenario without the government stepping in that they could have used Chapter 11 to re-organize.
In this case, a corporate liquidation is exactly like death, the assets are divided up amongst the creditors and the company ceases to exist.
Nothing that can happen to a corporation is like human death for the humans making the decision, nor for the humans who stand to lose money for having invested in that company, nor for the humans who are employees at the corporation.
It just isn't the same. Not remotely. There's no parallel.
AIG, via its decision-makers, took the bet that the bailout would work out for them for the same reason they took the bets that put them into that position and the same reason they're taking the bet that it's worth suing the federal government: a sober analysis of risk/reward suggested it was the best business move.
No-one acted out of desperation. No-one was going to be hung for their misdeeds. No-one was jumping out a window for grief or committing seppuku for shame.
No, liquidation of a corporation is only like a human's death in that it implies the division of the entity's assets.
But the humans making the decision to accept the deal do not feel fear that they will cease to exist and they will leave their loved ones behind. They don't have the animal fear of physical pain either. Unless they have been terribly reckless with their personal finances, they are not at any risk of actual death. At most, they have dread of embarrassment and the shame of having failed the trust of their employees.
Except "death" is not a viable nor reasonable choice for a human being, while bankruptcy and/or liquidation are both very normal and reasonable choices for an organization especially if that organization got itself into that trouble in the first place and had it been any other (smaller) business, this would have instantly been the end of it.
The very fact that the government even stepped in is a major exception to the system as a whole, so this is more like the flying spaghetti monster sending you back to earth after your suicide and you then wanting to sue His Noodly Appendage for not having been able to play the lottery on the day of your death and/or not picking up Charon's ferry bill for you.
And there is no law against offering a tough deal when the odds are stacked for you and your partner has their back against the wall - a principle the banks and insurances use and (strongly) abuse each and every day against those who have no choice. Again, had this been some even-bigger-money-giant buying AIG out and then running the place into the ground again, it would have also been the end of it.
They are twisting a rule that was obviously meant to keep capitalism and business separate from government just to get some money out of it when without that governmental divine intervention they would not even be existent in the first place.
I am all for playing devil's advocate and looking at the flip-side of things and great you made an attempt but, sorry, this is wrong on so many levels, there is no right way of looking at it.
I know you don't mean to draw a parallel, but I'm nevertheless going to point out that the illustration isn't very...illustrative. AIG was in a situation where the expectation was for it to go out of business because of its own (possibly illegal) mismanagement. It was offered a deal whose price, rather than being morally repugnant or open-ended, was merely expensive. And no one was going to die in any case. So let's try this:
You've decided to push a rather nice antique couch off the back of a high-flying plane for reasons all your own. While it falls, someone radios you and says, "look, I'll snatch this couch out of the air with this really expensive-to-fly jet with grappling hooks I have, but afterwards you'll owe me 80% of what you make selling it or renting it to those weird antique museums". Turns out the guy calling you really just wants to prevent the couch from crashing into a residential area, but he figures that in order to afford this crazy couch-saving stunt, he needs a big chunk of equity in the couch, which will be splinters if he doesn't save it anyway. And you, having decided that dropping a valuable piece of furniture from 30,000 feet was a bad idea after all, take the deal.
It turns out that you made a good move, because later you sell the couch and make lots of money, a lot of which goes to the crazy couch-saver guy. And you still think the deal sucks, so much so that, apparently, it was illegal for some reason, and you should get to keep a higher percentage of the couch's proceeds.
> If you are about to die and the only person who could save you, offers to do so, but asks you to agree to something reprehensible in exchange for saving you, what do you do?
I see it differently: if you are walking down the street and see that a shop is closing its doors, do you help the owner to stay open knowing that he can sue you later?
You are being extremely disingenuous. You are equating the dead of a person with the dead of a company. By doing this you are biasing the argument in your favor because people know is bad to let people die. All in all I cannot take your argument seriously if you do stuff like that. You are apealling to emotion rather than reason.
Time to have some serious, un-edited conversation here folks.
The comments around this question have been really interesting to watch. But the underlying subtext of corporations 'good' vs 'bad' and the level of seriousness it entails when they are dissolved is even more amazing.
First off, on a discussion group that is pretty much focused on creating innovation through technology, the concept of corporations is pretty much fundamental. If you hate corporations and everything they stand for then starting one should be the last thing on your mind. Further helping other people create theirs should also be pretty low on your list. Without the existence of these collectives there is no framework for seed rounds, 'happy exits', or IPOs. There is no 'acqui-hire' and no structure in which to build a vision that is greater than yourself.
But the second bit that must be understood is that "corporations" are composed of people, just as a marriage is composed of people. These companies are things that people invest time, emotion, and money into to further their goals. When they fail, people feel badly, sometimes really badly about that.
If you decide to live in the community of people who build companies from the ground up, or work to make them great, then someone you know personally will commit suicide when they come to the realization that their company has failed and they could have prevented it. I know it is hard to imagine this as a young person who has yet to face their own mortality in any serious way, but please try to understand this scenario.
You have been working with folks for 3, 4, 5, or maybe 10 years on building something together. Imagine someone you knew in 6th grade is is now graduating with you in college. There are challenges that you don't think you can overcome, personal hardships that you weather together, shared victories you've achieved. You've shared in people making progress toward their life goals, perhaps they have saved up enough to buy their first house, maybe their kids have made it into an Ivy League college, maybe their kids have married your kids. And now, all of this and more is going to be destroyed. These people, these friends and colleagues, are going to have their lives turned upside down, and some more than others. Some will lose their houses, their kids will be told they have to come home because there is no money for school, reputations will be smeared, and good people who did nothing but great work will be villified by a public which has been fed information in a way that creates the most rage and the least understanding.
If you, latinohere, or anyone else reading this, ever get the "opportunity" to be standing at that abyss and look into it, you may feel that your own death is actually preferable than having to live with that. Sadly I know friends who decided it wasn't worth it and they ended their own lives rather than live with the knowledge they had led people into a place that turned out not as they had hoped. And in that moment, that moment of decision, do you take this "deal" which converts a bad outcome to a slightly less bad outcome. it really comes down to people living and dying. Corporation or not, real people who have to live with themselves the day after and the day after that.
With government contract work here in New Zealand I have noticed a willingness to call in the lawyers very early. If the contract were with a private enterprise there is no way a contract would get renewed, however the government is happy to deal with people even after after they have been sued recently. This may not we a world wide phenomenon.
I have seen it noted that common law countries in general tend to resort to lawyers early and often. Indeed when comparing major construction in different countries, having a common law legal system is a risk factor for having much higher costs.
It's not like the government forced them to take the bailout. They could have declined and sunk into bankruptcy, they had a choice and they should live by that choice. If the company were run honestly and competently they wouldn't have ever been put into that situation in the first place. I'd like to call this whole scenario karma, ain't it a bitch?
However annoying this is, there is some truth to the claim that the takeover of AIG was a "backdoor bailout" of other firms. Somewhat like the IMF loaning money to countries like Thailand and South Korea during the Asian financial crisis. The bailout money went straight through the immediate recipients and on to their creditors.
"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.”
From a different HuffPo article for context:
"When news first broke in 2009 that Goldman had been an indirect beneficiary of the AIG bailout, collecting the full value of some $14 billion in outstanding insurance polices it held with the firm, the officials who brokered the deal justified these terms as a necessary stabilizer for the broader financial system."
Say what you will about A.I.G being a douche joining a lawsuit against the Gov. Some ex-Goldman Sachs people brokered a deal that made Goldman whole at the cost we-the-people and with bad terms to A.I.G.
There is some legitimacy to that claim -- whether or not in the public perception it looks like AIG biting the hand.
If AIG would have went bankrupt, shareholders would have got nothing. After all the liabilities paid out(to the wall street clients who had credit default swap contracts), there would have been nothing left. US put 170 billion into a company worth $2 billion(market cap at the time) for 92% stake. There is no legitimacy to the claim.
That's not true, the shareholders would only have gotten nothing if the creditors insisted on immediate payment / and/or liquidation.
Given the fiscal situation I'm sure they would have seen the error of their ways. AIG being liquidated would have been possibly the worst thing for AIG's creditors and the best outcome possible for the people of the United States.
The government used the assets of AIG for it's own purposes and did not compensate the shareholders, the government was perfectly at liberty to let the institution collapse, but instead chose to prop it up.
I happen to have had a Bloomberg terminal on my desk the day AIG was bailed out. Lets just say I have a pretty good idea of what AIG meant to the economy.
For the same reason the government gave AIG $187 billion, the banks would have figured out how to craft a deal such that to the public it appeared that AIG was a viable financial entity.
> For the same reason the government gave AIG $187 billion, the banks would have figured out how to craft a deal such that to the public it appeared that AIG was a viable financial entity.
Around the same time US Treasury Secretary Hank Paulson was begging people on his knees for the rescue of Wall Street (http://www.guardian.co.uk/business/2008/sep/27/wallstreet.us...) and no-one generally had any idea if the Western financial system as it was right then had much to live. I say that AIG depending on (private) third parties for its rescue would have meant certain bankruptcy.
"For the same reason the government gave AIG $187 billion, the banks would have figured out how to craft a deal such that to the public it appeared that AIG was a viable financial entity."
So why didn't they? Maybe because they were BROKE and people were wondering which bank would collapse the next morning. AIG gobbled over $100 billion in a month or so, otherwise they would have defaulted and everything would've been toast.
That same week even the mighty Goldman Sachs kissed Buffet's ring and got $5 billion from him, yet you expect dozens of top banks, with different exposures and interests, getting together to put up $150+ billion in a few hours. This is recent and I remember it really well.
I guess I don't follow how the government used AIG's assets for it's own purposes. AIG owed money to other people (specifically Goldman), and when they got the bailout money were instructed to do what real businesses do (pay their debts). Receiving a bailout sounds like reasonable grounds for not defaulting on obligations. AIG had 2 options, the first was to take the bailout money and pay back their debts, and the second was to go into bankruptcy. There wasn't a third option where they got to decide not to pay back what they owed, and instead just kept all the bailout money for themselves.
> Some ex-Goldman Sachs people brokered a deal that made Goldman whole at the cost we-the-people and with bad terms to A.I.G.
That misses the point, I think. It's perfectly fair for you as a taxpayer to complain that it's a sweetheart deal for Goldman and shouldn't be where your money goes. That's all fine, but it doesn't help AIG's claim that it's been mistreated.
The whole purpose of bailing out an insurance company is to make sure it can pay out its policies. The public has no interest in helping AIG's shareholders per se, so of course the government going to drive a deal that screws them as much as possible in the process of getting what it wants. And it should -- like the company, if it's going to make a deal, it should make one that best serves its stakeholders. And if AIG thought the deal sucked, it should have said no and entered bankruptcy (a perfectly reasonable thing for a company to do). But it took the deal because the board, who represents the shareholders, thought that was the better of its two options. So now their stuck with a deal that they wish were better, but I don't see why anyone owes them that.
In other words, maybe the public's best option was to let AIG fail, and maybe AIG's best option was to let AIG fail, but I don't see the scenario in which the government is being unfair to AIG.
There is no legitimacy to that claim. They did not have to take the deal. The government did not owe them anything.
Maybe there was something about the bailout being really a Goldman bailout, and if someone can prove actual corruption there, maybe there could be grounds for the Government to sue Goldman.
But there is no reason here the Government would owe AIG anything out of this.
Just because AIG ended up being some half-lucky and double-dumb middleman does not give them any legitimacy for such claims what-so-ever. They are nothing but lucky to still be there and the whole governmental stepping-in is not even a natural part of the system, while bankruptcy very, very much is.
They really don't care about that. When they were very close to bankruptcy, they would've done whatever the government would've asked them to do. Soon after the bailouts, they weren't even going to meet with Obama to talk about further banking regulations. I'm talking about the top banks in general.
> The choice is not a simple one for the insurer. Its board members, most of whom joined after the bailout, owe a duty to shareholders to consider the lawsuit. If the board does not give careful consideration to the case, Mr. Greenberg could challenge its decision to abstain.
Which is reiterated by the expert they interviewed:
> “On the one hand, from a corporate governance perspective, it appears they’re being extra cautious and careful,” said Frank Partnoy, a former banker who is now a professor of law and finance at the University of San Diego School of Law. “On the other hand, it’s a slap in the face to the taxpayer and the government.”
It may seem reprehensible, but they are obligated by law as a public company with obligations to its shareholders to at least consider it. Whether they join or not, and under what merits, should be how we judge them.
I cannot express how disgusted I will be should AIG join the suit. The notion that AIG was somehow wronged by the government in this case is beneath contempt.
That makes for a nice sound bite but how do you decide it? I'm not even opposed to the idea (I'm overwhelmingly in favor, actually) but what mechanism is used to establish "too big to fail?" I realize that we can't legislate on the basis of "unforeseen consequences," but legislation by bumper sticker slogan is just as bad.
I didn't propose a law, it was a principle and details can be worked out. For example you can start by deleting the past 10-20 years that created such monsters. Citibank, BOFA, Goldman Sachs etc were /are too big to exist in the current form so they need to be broken up. If they fail because they made stupid bets for short term bonus cash, they go bankrupt and not many people care.
Obviously SOME sort of mechanism was used when the decision was made FOR the bail-outs. How about you very simply start there? You can always improve later.
Here's a metaphor to consider; think of financial crises as forest fires, easy to start and hard to fight when conditions are right for them. Bailouts act to increase the fuel load in areas where they apply, so while they solve the immediate problem (you put out todays fire) you are creating conditions to make future fires worse ( more fuel, faster spreading fires, greater damage ). In a very real way, bailouts have allowed vulnerable institutions to survive to make the rest of the economy more vulnerable than it would have been had the banks been allowed to die.
It's kind of funny that the government apparently (if AIG claims are true) did the same to them as what politicians long criticized the bankers for doing as "predatory lending". I.e. if you consider that using one's bad situation to trick him into a loan which terms are unduly onerous is despicable thing to do for a bank - shouldn't be the same thing despicable for the government? On the other hand, if it's OK for the government to do, they shouldn't really use this "predatory lending" term anymore - at least not in a legal context. In a generic rhetoric, you can say "charging this much for a loan really sucks, you're a giant douche if you do that" but legally if it's OK for the government shouldn't it be OK for others?
The biggest problem with predatory lending is the salesmanship and opacity of terms that make the financial impact unclear to the person buying the loan.
In this case we're talking about extremely savvy investors who were given an offer that they accepted eyes wide open. If this was a bum deal, any anger should be directed at the directors/board rather than the government.
As I said in other comment, would you be willing to support this notion for any deal? E.g., if the offer is very clear and not opaque at all - say, you are in desperate need of a job, and some employer offers you a salary that is 10% lower than legal minimal wage and 20% lower that is common in your profession, and openly says this is because of your gender and race and he knows you gender and race are lazy and unproductive, but since he's low on money he's willing to hire you for low price - would you say such clear and open offer be fine? Current law considers it illegal and unfair, do you reject this concept and would you vote for a politician that would support repealing such laws and declare any voluntary contract which is clear to both sides to be legal? If you would, you would find yourself in very tiny minority in contemporary America. Most people think that some deals are unfair even if both sides agreed on it - and unfairness may stem from many things, difference in power one of them. Powers of AIG management and US government at that moment were obviously very different - so why it is inconceivable to consider that it may be that US government used his advantage to deal unfairly? We know lots of other cases where people in power used their powers to deal unfairly, why it couldn't happen in this particular case? It may or not may happened indeed - that's why you need a court to figure it out - but I don't see, in current legal system, how you can reject the notion that it can be possible in principle.
> 10% lower than legal minimal wage and 20% lower that is common in your profession, and openly says this is because of your gender and race
That completely breaks the comparison you're trying to draw. Paying someone less than minimum wage and paying them something different because of their gender or race are all explicitly illegal. A tough deal offered to AIG is none of those things, and it does not follow from "these specific things are illegal" that "any generalization of those things is therefore illegal". If the comparison weren't so speciously constructed, I'd also complain that comparing the behavior of the government towards a multi-billion dollar corporation to the behavior of lenders towards a poor person is pretty lame.
Legality aside, the actual advantage the US government had was that no one else wanted to loan AIG money. That's a pretty good reason to give them tough terms. The US would just be making a sweetheart deal with AIG otherwise. One way to think about it is that the most obvious alternative is for the US not to have bailed them out at all.
The question whether the government actions in this case were legal or not is up to the court for decide. But if you accept the premise that some voluntary contracts can be not OK despite their being voluntary, you can not object to AIG's claim that they were wronged by saying "but it was voluntary!". You know already being voluntary is not enough - either you have to abandon this notion or you have to abandon your objections to AIG.
>>>> Legality aside, the actual advantage the US government had was that no one else wanted to loan AIG money. That's a pretty good reason to give them tough terms.
Do you always accept this premise? Say, nobody would be willing to lend you money - because of recent bankruptcy. Would it be OK for some shady outfit to offer you a 30% a day loan, and have you agree that if you don't return it all they get to beat you up at their heart's content? If you're hungry enough you may voluntarily agree, would it make you OK? Would it make it OK if you were sick and nobody would agree to treat you without upfront payment, but one establishment would agree if you promise to give them 95% of all your future income - would it be fine then? Or is it fine only when done to other people, especially ones investing in an evil corporation?
>>>> The US would just be making a sweetheart deal with AIG otherwise.
There's a lot of way between unfair deal and sweetheart deal. Most deals fall into the spectrum between them.
The government is not a money lender, it rescued AIG even forcibly one might say because of the doomsday risks it posed to the rest of the economy (they were underwriters on trillions of derivative contracts). The AIG bosses should be happy that they weren't tried in a court of law for issuing fraudulent CDS insurance. All said the circumstances regarding AIG were exceptional and the banking jargon doesn't apply here.
The government is a huge money lender, what you're talking about? The government lent tons of money to tons of companies, and will do it again whenever it would want to. As for if AIG bosses did something criminal or not, that's completely unrelated question to the question if the deal AIG as a company got was fair or not. Exceptional circumstances also have little to do with it - either the deal was fair, and then they don't matter, or it was not, and then circumstances are no excuse. Banking jargon has nothing to do with it either - there are plenty of examples in US law where unfair deals are considered illegal and one can be punished for doing such deals.
I'd like to see them try and prove they were taken advantage of by referencing their own incompetence. "Your honor, the defence claims that we were sophisticated investors but look at what we did. Are these the acts of a sophisticated man who knows what he's doing?"
You are glossing over the fact that the current board of directors are not the same people who got the company into trouble in 2008. They are the ones who turned the company around. They also have the same mandate as the board of any other publicly traded company: maximize value for the shareholders.
>You are glossing over the fact that the current board of directors are not the same people who got the company into trouble in 2008.
That doesn't bear on whether they could (jokingly obv.) claim to be an unsophisticated victim of predatory lending, only the board at the time matters for that.
The board can run the company the way they want, barring gross misconduct or fraud, the shareholders had their say at the AGM.
>"if you consider that using one's bad situation to trick him into a loan which terms are unduly onerous is despicable thing to do for a bank"
I feel like these conversations are so one-sided: Why is it always this?
Yes, predatory lending happened. But you know what else happened? People fraudulently reported personal information (with little verification required, which was a government mandate) to get mortgages. People who knew they had no chance in hell to repay the mortgage, but thought they could "flip" the house in time, or that prices would never fall. I can't tell you how many stories I've read or listened to where people tell their tale of going into the bank, reporting their income way too high (yes, sometimes thanks to a pushy mortgage broker) and getting a massive mortgage. All with no job. This is fraud, but the banks don't worry too much, because worst case scenario they take back the property.
The papers you sign are your responsibility. That goes for both parties.
Rolling Stone has a huge anti-bank bias. The material they present is usually misleading, out of context and often plain wrong or mis-informed. This is absolutely not a credible source on the financial crisis. Indeed Matt Taibbi
is basically just a troll.
Sure. But I have a day job and no time to put together critical analyses of random stuff on the internet. Plus I don't really care what other people chose to believe.
So going by the number being sought (I haven't bothered to read the complaint), the government should only have taken an 85% stake instead of a 92% stake? This seems like an instance of chronic denial by Greenberg and his remaining admirers - anything to put the blame on someone else.
So X company screw up, needs bailout as without would cease to be and all shareholders would lose there money at the very least if they did not get a bailout.
This impacts non-shareholders who inderiectly impacted by less money in goverment to finance other area's.
Company pays back the bailout and now the shareholders are crying they want more money as they think it was unfair in the first place.
Can we just label them financial terroists and put them all in orange oneseys and then see who is laughing about it.
Bottom line what a bunch of utter cnuts. I hope the goverment and the people educate them fully and don't use any lube whilst doing it.
AIG should STFU and be glad to be living in a socialist economy.
In a real free capitalist economy they'd be dead. It sure would have brought turmoil but... The sooner this fake economy goes down, the earlier real recovery can start.
We're only pushing the can down the road and, meanwhile, creating all the necessary condition for a much harder landing.
Nicolas Nassim Taleb said that companies like GS and AIG should STFU and that their employees should be getting minimum wages (and certainly not more bonuses).
You have to realize that AIG is effectively on "life support" as Taleb puts it.
When you're on life support because you screwed and when an entire country is bleed by taxes to keep you alive (all the money that went to AIG is taxpayers money), you better STFU.
I can't even begin to understand the various people explaining here that the terms were not reasonable.
Next time let GS / AIG and all the ones benefitting from the "crumbs of capitalism" as Buffet puts it (i.e. finance) to die a horrible death.
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[ 3.1 ms ] story [ 160 ms ] threadThere was a greater than 0% chance that the government would end up with 0$ (losing everything they "invested"). In order for them to agree to take on that risk, they needed a suitable interest rate in return. At the time the deal was made, comparable "junk" bonds were at or above that interest rate. It's just the return that investors want for such a risky investment. It's not at all like racism.
>>>> In order for them to agree to take on that risk, they needed a suitable interest rate in return.
Of course. Nobody doubts that and nobody claims the money should have been provided for free. What is argued is the conditions were unfairly onerous. This may be pure bullshit and conditions might have been just fine, but voluntarity does not prove or disprove it, it is irrelevant once you accept, as US law does, that voluntary deals can be not OK. You can not have one without the other.
Even given that, a 14% interest rate and being asked to pay back contractually obligated debt don't seem to be onerous. Companies (and individuals) with poor creditworthiness are asked to do that all the time. It's certainly not a historically onerous agreement, and it's in-line with the returns investors were seeking for similarly risky investments at that time.
The highlight of the article:
> Judge Paul A. Engelmayer wrote that while Starr’s complaint “paints a portrait of government treachery worthy of an Oliver Stone movie,” the company “voluntarily accepted the hard terms offered by the one and only rescuer that stood between it and imminent bankruptcy.”
Sure, the terms might have seemed "unfair" but what could they possibly expect? It was "accept some harsh terms for royally screwing up or go under." It's not like they were some innocent bystander; they made some really stupid decisions and paid the price.
Side note: those "thank you" commercials feel so terribly disingenuous;
It's amazing to me how the USA is still so innovative despite that legal insecurity.
If you are about to die and the only person who could save you, offers to do so, but asks you to agree to something reprehensible in exchange for saving you, what do you do?
At the risk of creating a strawman (the goal is illustration not substitution) let us construct a scenario, you're hanging by a rope which is breaking, you have maybe 10 minutes before it breaks. And the only person who can save you says, "Ok, I'll save you on the condition that in the near future I will come to you and ask you to do something for me, and you must agree to do what ever I ask."
What if your savior asks you to blow up an airplane? Or sell your spouse into the sex trade? or any of a dozen things you would never do voluntarily and are counter to your values. This is the kind of thing that novelists use to create tension, its very effective.
So AIG claims here that the Government went too far in its ask, and has crossed some line into moral turpitude. Who is the bad guy? the good guy? Doesn't really matter though, its one of those chickens they talk about that come back to roost. Never a good thing.
Boy: Do not try and recover the money. That's impossible. Instead only try to realize the truth.
Neo: What truth?
Boy: There is no money.
Neo: There is no money?
Boy: Then you'll see that it is not the banks that are broke, it is only yourself.
Back in reality, most banks have paid back their TARP funds, as did AIG, generating a hefty return over 3 years to the Treasury. You know what bailout is still significantly in the red? The auto industry. But we hear little about that because those guys don't work on Wall Street.
In all fairness, I do not remember "the auto industry" almost bringing the whole capitalistic system (and with it our Western world) close to a grinding halt, according to what we were lead to believe, in the last 5 to 10 years. And after the gang-rape that GM did over here in Germany and continues to do now, oh yes you do hear about them here.
> a suit is a parasitcal criminal.
From what I have seen, the average folks still buy into the opposite extreme where every suit and especially every banker is some sort of god-like being, far removed from our mere mortal realm and surely a gravely respectable person, much more so than the average Joe. Quite frankly, I find the extreme prevalent on the internet to be far more beneficial because it moves things into a direction where the strange money-fetish has to make way for a more realistic view of this profession so prone to scams, frauds, "gamblings", cut-necks and other shenanigans. It will hopefully help people to view a bank not much different from some regular store, a place offering a service, regardless of dress code.
Also, I do not think the auto industry runs Stasi-like intelligence operations where they constantly collect and pool your most private and financial information and credit ratings and use all that to evaluate how they are going to deal with and sell to you - or potentially put you out on the street.
As someone unfortunate enough to be working in IT in this "parasitic" industry I cannot see this industry getting hit and dis-credited hard enough after they have repeatedly gotten away with much more than murder over decades. There is no reason other than money that anyone works in this and it cannot be a coincident that they pay much more than a lot of other industries; and I don't think there are a lot of other industries with a more backward, pre-history corporate and work culture.
I don't care about "could haves". These industries were all bailed out; some returned a profit to the taxpayers, some are still in the red without a chance of paying any of it back. Yet we continuously denigrate the industry that paid the money back as the "criminals".
>"From what I have seen, the average folks still buy into the opposite extreme"
Really? You must be living in a different world than I am. Just skim this thread, or any thread on Reddit...
>"Also, I do not think the auto industry runs Stasi-like intelligence operations where they constantly collect and pool your most private and financial information and credit ratings and use all that to evaluate how they are going to deal with and sell to you - or potentially put you out on the street."
Banks aren't planning to put you on the street. Where does this come from? Banks want to lend money and be paid back, with interest. This whole debacle worked out really well for them. They only had something like 3 trillion wiped from their collective balance sheets.
By the way, the auto-industry parents run huge financial companies.
>"it cannot be a coincident that they pay much more than a lot of other industries"
Sort of like IT? Or medicine?
Yes, I am. And I hope you do realize that neither of those two are even remotely representative for the vast masses of average folks out there.
Their finance departments were used for much more than car loans.
The industry needed an infusion of cash, and they spread it around a bunch of the biggest players.
Ford ticked up after not taking a handout, larger well governed banks had no such opportunity.
Deposits up to $100K (or thereabouts) were insured by the FDIC, so even under a run, the savers in the bad banks were not going to be left high and dry; and perhaps wiser about where they put their money in the future. Perhaps the Federal Government didn't want to see the FDIC invoked.
Instead, a precedent was set; bad behavior was not punished (by way of market action), and good behavior is tainted by association (via political demonizing).
To continue the metaphor, it's like if a guy conned your family out of their life savings, and then the Government generously seized your home in exchange for paying the guy who scammed you the rest of the money you owed him which you couldn't afford to pay.
Edit: see, for instance, http://www.huffingtonpost.com/david-fiderer/the-cdos-that-de...
Yes, the government bailout of AIG went towards paying off their counterparties. But those were actual debts that AIG owed because of their own stupidity and greed. Had AIG gone bankrupt instead, the counterparties would not have received anywhere near full payment, and there's a compelling case to be made that that's how it should have been. But this idea that AIG somehow got screwed by having to pay off their shitty bets with our money is laughable and disgusting. If the shareholders want to sue someone, it should be their own board.
If the government were a payday loan shop and gouging thousands of independent companies everyday, your analogy would hold water. Till then, this is merely a straw-man argument.
Also, I got my analogy wrong. It would be more like if the Government seized 92% of your house in exchange for loaning you the money to pay off the scammer with interest, which they knew you could repay.
Even after the massive swindle, AIG's problem was liquidity and not insolvency - they had enough assets to repay everyone and if they'd actually gone bankrupt, the shareholders may well have come out better in the end, but their counterparties would've been screwed because they'd have had to have waited for the bankrupcy proceedings to get paid.
Conflating their position with calamitous death seems borderline disingenuous. You're soliciting emotional reactions to an unforeseeable emergency. But AIG was in a situation that years of rational business decisions put in the cards. They not only should have known it could happen, but they'd also know that their gains from having done it far outweighed the personal potential losses.
Which is almost certainly why the gambles were made in the first place and puts the lie to any analogy to human desperation in a split-second survival scenario.
In this case, a corporate liquidation is exactly like death, the assets are divided up amongst the creditors and the company ceases to exist.
It just isn't the same. Not remotely. There's no parallel.
AIG, via its decision-makers, took the bet that the bailout would work out for them for the same reason they took the bets that put them into that position and the same reason they're taking the bet that it's worth suing the federal government: a sober analysis of risk/reward suggested it was the best business move.
No-one acted out of desperation. No-one was going to be hung for their misdeeds. No-one was jumping out a window for grief or committing seppuku for shame.
But the humans making the decision to accept the deal do not feel fear that they will cease to exist and they will leave their loved ones behind. They don't have the animal fear of physical pain either. Unless they have been terribly reckless with their personal finances, they are not at any risk of actual death. At most, they have dread of embarrassment and the shame of having failed the trust of their employees.
The resemblance between this and becoming worm-food is uncanny, though.
If you actually believe this, then I believe you are a terrible person.
The very fact that the government even stepped in is a major exception to the system as a whole, so this is more like the flying spaghetti monster sending you back to earth after your suicide and you then wanting to sue His Noodly Appendage for not having been able to play the lottery on the day of your death and/or not picking up Charon's ferry bill for you.
And there is no law against offering a tough deal when the odds are stacked for you and your partner has their back against the wall - a principle the banks and insurances use and (strongly) abuse each and every day against those who have no choice. Again, had this been some even-bigger-money-giant buying AIG out and then running the place into the ground again, it would have also been the end of it.
They are twisting a rule that was obviously meant to keep capitalism and business separate from government just to get some money out of it when without that governmental divine intervention they would not even be existent in the first place.
I am all for playing devil's advocate and looking at the flip-side of things and great you made an attempt but, sorry, this is wrong on so many levels, there is no right way of looking at it.
You've decided to push a rather nice antique couch off the back of a high-flying plane for reasons all your own. While it falls, someone radios you and says, "look, I'll snatch this couch out of the air with this really expensive-to-fly jet with grappling hooks I have, but afterwards you'll owe me 80% of what you make selling it or renting it to those weird antique museums". Turns out the guy calling you really just wants to prevent the couch from crashing into a residential area, but he figures that in order to afford this crazy couch-saving stunt, he needs a big chunk of equity in the couch, which will be splinters if he doesn't save it anyway. And you, having decided that dropping a valuable piece of furniture from 30,000 feet was a bad idea after all, take the deal.
It turns out that you made a good move, because later you sell the couch and make lots of money, a lot of which goes to the crazy couch-saver guy. And you still think the deal sucks, so much so that, apparently, it was illegal for some reason, and you should get to keep a higher percentage of the couch's proceeds.
Now, what part of that seems like duress?
Man, if I were a timetravel agency, I'd be selling front-row tickets to the 21st century as "comedy night".
I see it differently: if you are walking down the street and see that a shop is closing its doors, do you help the owner to stay open knowing that he can sue you later?
The comments around this question have been really interesting to watch. But the underlying subtext of corporations 'good' vs 'bad' and the level of seriousness it entails when they are dissolved is even more amazing.
First off, on a discussion group that is pretty much focused on creating innovation through technology, the concept of corporations is pretty much fundamental. If you hate corporations and everything they stand for then starting one should be the last thing on your mind. Further helping other people create theirs should also be pretty low on your list. Without the existence of these collectives there is no framework for seed rounds, 'happy exits', or IPOs. There is no 'acqui-hire' and no structure in which to build a vision that is greater than yourself.
But the second bit that must be understood is that "corporations" are composed of people, just as a marriage is composed of people. These companies are things that people invest time, emotion, and money into to further their goals. When they fail, people feel badly, sometimes really badly about that.
If you decide to live in the community of people who build companies from the ground up, or work to make them great, then someone you know personally will commit suicide when they come to the realization that their company has failed and they could have prevented it. I know it is hard to imagine this as a young person who has yet to face their own mortality in any serious way, but please try to understand this scenario.
You have been working with folks for 3, 4, 5, or maybe 10 years on building something together. Imagine someone you knew in 6th grade is is now graduating with you in college. There are challenges that you don't think you can overcome, personal hardships that you weather together, shared victories you've achieved. You've shared in people making progress toward their life goals, perhaps they have saved up enough to buy their first house, maybe their kids have made it into an Ivy League college, maybe their kids have married your kids. And now, all of this and more is going to be destroyed. These people, these friends and colleagues, are going to have their lives turned upside down, and some more than others. Some will lose their houses, their kids will be told they have to come home because there is no money for school, reputations will be smeared, and good people who did nothing but great work will be villified by a public which has been fed information in a way that creates the most rage and the least understanding.
If you, latinohere, or anyone else reading this, ever get the "opportunity" to be standing at that abyss and look into it, you may feel that your own death is actually preferable than having to live with that. Sadly I know friends who decided it wasn't worth it and they ended their own lives rather than live with the knowledge they had led people into a place that turned out not as they had hoped. And in that moment, that moment of decision, do you take this "deal" which converts a bad outcome to a slightly less bad outcome. it really comes down to people living and dying. Corporation or not, real people who have to live with themselves the day after and the day after that.
Not to mention misdirected. The implication is that the American people are the ones being thanked, as if they had any choice in the matter.
"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.”
From a different HuffPo article for context:
"When news first broke in 2009 that Goldman had been an indirect beneficiary of the AIG bailout, collecting the full value of some $14 billion in outstanding insurance polices it held with the firm, the officials who brokered the deal justified these terms as a necessary stabilizer for the broader financial system."
http://www.huffingtonpost.com/2011/01/26/goldman-sachs-aig-b...
Say what you will about A.I.G being a douche joining a lawsuit against the Gov. Some ex-Goldman Sachs people brokered a deal that made Goldman whole at the cost we-the-people and with bad terms to A.I.G.
There is some legitimacy to that claim -- whether or not in the public perception it looks like AIG biting the hand.
Given the fiscal situation I'm sure they would have seen the error of their ways. AIG being liquidated would have been possibly the worst thing for AIG's creditors and the best outcome possible for the people of the United States.
The government used the assets of AIG for it's own purposes and did not compensate the shareholders, the government was perfectly at liberty to let the institution collapse, but instead chose to prop it up.
Do you really think that the banks (already in the brink of bankruptcy) would have ponied up tens of billions so AIG would continue to operate?
I don't think you know how much of the world's finance AIG controlled via their insurance. http://en.wikipedia.org/wiki/American_International_Group#Fe...
For the same reason the government gave AIG $187 billion, the banks would have figured out how to craft a deal such that to the public it appeared that AIG was a viable financial entity.
Around the same time US Treasury Secretary Hank Paulson was begging people on his knees for the rescue of Wall Street (http://www.guardian.co.uk/business/2008/sep/27/wallstreet.us...) and no-one generally had any idea if the Western financial system as it was right then had much to live. I say that AIG depending on (private) third parties for its rescue would have meant certain bankruptcy.
So why didn't they? Maybe because they were BROKE and people were wondering which bank would collapse the next morning. AIG gobbled over $100 billion in a month or so, otherwise they would have defaulted and everything would've been toast.
That same week even the mighty Goldman Sachs kissed Buffet's ring and got $5 billion from him, yet you expect dozens of top banks, with different exposures and interests, getting together to put up $150+ billion in a few hours. This is recent and I remember it really well.
That misses the point, I think. It's perfectly fair for you as a taxpayer to complain that it's a sweetheart deal for Goldman and shouldn't be where your money goes. That's all fine, but it doesn't help AIG's claim that it's been mistreated.
The whole purpose of bailing out an insurance company is to make sure it can pay out its policies. The public has no interest in helping AIG's shareholders per se, so of course the government going to drive a deal that screws them as much as possible in the process of getting what it wants. And it should -- like the company, if it's going to make a deal, it should make one that best serves its stakeholders. And if AIG thought the deal sucked, it should have said no and entered bankruptcy (a perfectly reasonable thing for a company to do). But it took the deal because the board, who represents the shareholders, thought that was the better of its two options. So now their stuck with a deal that they wish were better, but I don't see why anyone owes them that.
In other words, maybe the public's best option was to let AIG fail, and maybe AIG's best option was to let AIG fail, but I don't see the scenario in which the government is being unfair to AIG.
Maybe there was something about the bailout being really a Goldman bailout, and if someone can prove actual corruption there, maybe there could be grounds for the Government to sue Goldman.
But there is no reason here the Government would owe AIG anything out of this.
Just because AIG ended up being some half-lucky and double-dumb middleman does not give them any legitimacy for such claims what-so-ever. They are nothing but lucky to still be there and the whole governmental stepping-in is not even a natural part of the system, while bankruptcy very, very much is.
> The choice is not a simple one for the insurer. Its board members, most of whom joined after the bailout, owe a duty to shareholders to consider the lawsuit. If the board does not give careful consideration to the case, Mr. Greenberg could challenge its decision to abstain.
Which is reiterated by the expert they interviewed:
> “On the one hand, from a corporate governance perspective, it appears they’re being extra cautious and careful,” said Frank Partnoy, a former banker who is now a professor of law and finance at the University of San Diego School of Law. “On the other hand, it’s a slap in the face to the taxpayer and the government.”
It may seem reprehensible, but they are obligated by law as a public company with obligations to its shareholders to at least consider it. Whether they join or not, and under what merits, should be how we judge them.
Obviously SOME sort of mechanism was used when the decision was made FOR the bail-outs. How about you very simply start there? You can always improve later.
In this case we're talking about extremely savvy investors who were given an offer that they accepted eyes wide open. If this was a bum deal, any anger should be directed at the directors/board rather than the government.
That completely breaks the comparison you're trying to draw. Paying someone less than minimum wage and paying them something different because of their gender or race are all explicitly illegal. A tough deal offered to AIG is none of those things, and it does not follow from "these specific things are illegal" that "any generalization of those things is therefore illegal". If the comparison weren't so speciously constructed, I'd also complain that comparing the behavior of the government towards a multi-billion dollar corporation to the behavior of lenders towards a poor person is pretty lame.
Legality aside, the actual advantage the US government had was that no one else wanted to loan AIG money. That's a pretty good reason to give them tough terms. The US would just be making a sweetheart deal with AIG otherwise. One way to think about it is that the most obvious alternative is for the US not to have bailed them out at all.
>>>> Legality aside, the actual advantage the US government had was that no one else wanted to loan AIG money. That's a pretty good reason to give them tough terms.
Do you always accept this premise? Say, nobody would be willing to lend you money - because of recent bankruptcy. Would it be OK for some shady outfit to offer you a 30% a day loan, and have you agree that if you don't return it all they get to beat you up at their heart's content? If you're hungry enough you may voluntarily agree, would it make you OK? Would it make it OK if you were sick and nobody would agree to treat you without upfront payment, but one establishment would agree if you promise to give them 95% of all your future income - would it be fine then? Or is it fine only when done to other people, especially ones investing in an evil corporation?
>>>> The US would just be making a sweetheart deal with AIG otherwise.
There's a lot of way between unfair deal and sweetheart deal. Most deals fall into the spectrum between them.
http://blogs.law.harvard.edu/corpgov/2012/06/26/the-sharehol...
And, the AIG CEO has publicly said his goal is to make his company as profitable as possible, and that may mean going to court.
That doesn't bear on whether they could (jokingly obv.) claim to be an unsophisticated victim of predatory lending, only the board at the time matters for that.
The board can run the company the way they want, barring gross misconduct or fraud, the shareholders had their say at the AGM.
I feel like these conversations are so one-sided: Why is it always this?
Yes, predatory lending happened. But you know what else happened? People fraudulently reported personal information (with little verification required, which was a government mandate) to get mortgages. People who knew they had no chance in hell to repay the mortgage, but thought they could "flip" the house in time, or that prices would never fall. I can't tell you how many stories I've read or listened to where people tell their tale of going into the bank, reporting their income way too high (yes, sometimes thanks to a pushy mortgage broker) and getting a massive mortgage. All with no job. This is fraud, but the banks don't worry too much, because worst case scenario they take back the property.
The papers you sign are your responsibility. That goes for both parties.
http://news.ycombinator.com/item?id=5025234
It's both mindblowing and disgusting the extent which banks have manipulated things to the point where they have their cake and eat it too.
This impacts non-shareholders who inderiectly impacted by less money in goverment to finance other area's.
Company pays back the bailout and now the shareholders are crying they want more money as they think it was unfair in the first place.
Can we just label them financial terroists and put them all in orange oneseys and then see who is laughing about it.
Bottom line what a bunch of utter cnuts. I hope the goverment and the people educate them fully and don't use any lube whilst doing it.
In a real free capitalist economy they'd be dead. It sure would have brought turmoil but... The sooner this fake economy goes down, the earlier real recovery can start.
We're only pushing the can down the road and, meanwhile, creating all the necessary condition for a much harder landing.
Nicolas Nassim Taleb said that companies like GS and AIG should STFU and that their employees should be getting minimum wages (and certainly not more bonuses).
You have to realize that AIG is effectively on "life support" as Taleb puts it.
When you're on life support because you screwed and when an entire country is bleed by taxes to keep you alive (all the money that went to AIG is taxpayers money), you better STFU.
I can't even begin to understand the various people explaining here that the terms were not reasonable.
Next time let GS / AIG and all the ones benefitting from the "crumbs of capitalism" as Buffet puts it (i.e. finance) to die a horrible death.
Maybe I just find it hard to think its anything other than greed when the company involved is an organised scam... er insurance company. ;)