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A court case brought by some former AIG shareholders over the government’s $182 billion bailout and takeover of the insurance and financial services firm during the 2008 financial crisis is shining a light on some questionable government judgments, says David Skeel, a University of Pennsylvania Law School corporate law professor. But it will be difficult to prove that AIG would not simply have crashed and burned quickly in the super-heated crisis environment surrounded by quickly escalating events back then.
Maurice “Hank” Greenberg, former long-time head of AIG, filed suit in a federal court three years ago, and the case is now being argued. He and his backers from Wall Street seek compensation from the government and claim that the terms of the bailout/takeover agreement were more onerous for AIG than those extended to any of the big banks that also were bailed out. AIG, unlike the others, was required to relinquish control of some 80% of its stock to the government, Skeel noted, in an interview on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.) The government later sold most of the AIG stock at a profit.
“People felt mistreated…they are trying to get back a piece of what [they feel] was taken from them…. At the heart of it, the shareholders argue the government forced AIG to take the government deal,” Twitter Skeel says. “But it is highly likely that without the government bailout, the company would have gone bankrupt quickly … so the shareholders have to be able to argue the stock was worth something when it looked like they were just going to crash…. That’s going to be a hard case to make.”
A highlight of the case is the expected testimony of Ben Bernanke, the former chairman of the Federal Reserve, and also of former Treasury Secretaries Hank Paulson and Timothy Geithner.