AIG Does the Right Thing

Dear American International Group (NYSE: AIG  ) board members,

First let me say thank you, from one happy American taxpayer. It took a lot of chutzpah for Maurice Greenberg to conjure up this suit against the federal government for alleged shareholder abuse. Imagine, coming after Uncle Sam for stepping in to save his old company -- to the tune of $182 billion, the biggest federal bailout in U.S. history -- when no one else would touch the company with a 10-foot pole, and when AIG had no one but itself to blame for its troubles.

And big troubles they were, when AIG, having charged blindly into the credit-default-swap market -- a market the previously mild-mannered and successful insurance company had no business whatsoever being involved in -- found it couldn't cover its extensive bets there. Of course, the federal government had no choice but to ante up as a result. AIG had gotten itself so insidiously interwoven into the fabric of the U.S. economy, if the Feds hadn't taken action -- saving your company from imminent bankruptcy -- it's conceivable the entire financial system may have gone down with it, taking you, me, and maybe the rest of the American people along for the ride.

Standing up to Maurice Greenberg probably wasn't easy. He's unmistakably a big-shot investor,  and someone who knows the company inside and out. A force to be reckoned with, to be sure, and the kind of person who could potentially turn his legal hit men back onto you for not listening to the "legitimate concerns of shareholders" if you didn't kowtow to his wishes. Way to show some chutzpah, yourself. Greenberg was CEO of AIG for nearly 40 years, I understand, right up until 2005, when he resigned in the midst of an accounting scandal.  

So, the man who drove AIG to the edge of bankruptcy with this credit-default-swap nonsense -- who had to jump unceremoniously out of the company just a few years before the crash -- has the nerve to suddenly reappear and use allegedly abused shareholder rights as the pretense for initiating the frivolous lawsuit of all frivolous lawsuits? "Chutzpah" doesn't begin to cover it.

I get that you, as board members, had to entertain this lawsuit. That you had to sit through Greenberg's 45-minute presentation, no matter how odious the whole affair seemed. That it was part of your fiduciary duty to shareholders to hear him and his high-powered attorney out.  And not only that, you had to endure the shrieks of outrage from the press when this special board meeting was announced -- who now think you only declined to join the suit because of them. I gave you more credit than that, and so did one of my favorite Motley Fool writers, who covered this story in depth a few days ago.

Speaking of the press, I really enjoyed this quote from CEO Robert Benmosche, which I found in yesterday's New York Times: "The board was legally required to consider the [Greenberg] demand -- the law and the courts required it -- and we did so thoughtfully, weighing all the appropriate factors. That is what sound corporate governance and properly undertaking our responsibilities and obligations to our shareholders are all about." 

Well put, Mr. Benmosche. I don't know if you said that with a wink and a nod, but I'm more than OK if you did. Kudos to you in general for doing an admirable job in getting AIG back on track, back to what it used to be -- a successful insurance company, not an insurance company with a hedge fund attached, as Fed chairman Ben Bernanke so wryly put it back in the dark days of the crisis. And more kudos for not only repaying the bailout in full, but for generating a profit for Uncle Sam in the process.

A lot of companies came out of the financial crash reeling, including Bank of America (NYSE: BAC  ) and Citigroup (NYSE: C  ) , who only survived due to massive capital injections courtesy of Uncle Sam. But none, frankly, were in straights as dire as AIG's.

Someone else quoted in the Times article, whose remarks I thoroughly agree with and which I shall leave you with as my own parting remarks, is University of Texas law school professor Henry T.C. Hu, who had this to say about the whole sordid affair: "The speed of the board decision today suggests that the remarkably unusual and expensive mock trial was a waste of time, besides insulting to the public and regulators." 

Mock trial. A spot-on turn of phrase. Good job, gentlemen. And thanks again: I knew you had it in you.

Sincerely,

One happy American taxpayer

Final Foolish thought
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Read/Post Comments (7) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On January 11, 2013, at 12:49 AM, TEBuddy wrote:

    This whole article is dumb. You write as if your opinion is fact, or anyone cares how you feel about it. Was it the right thing? You dont know, but you are happy to reep the benefits of the Government's illegal indiscretions and not being held accountable for them now.

    I am about 100% positive, you don't even know the facts of the case against the Government, and just how much AIG was screwed out of in the payback.

    Ahem, I think the American people get the biggest bailout. Lets see. How much money went to exteneded, and double extended unemployment benefits, welfare payments, forgiven foreclosure tax liability, living in homes for years without paying mortgages, or property taxes I assume, and then not being held accountable for it. And Americans say they get no bailout. Hogwash, the US Government has spent WAY over $182B on payouts to people that wont work for their living and have skated out on their obligations.

  • Report this Comment On January 11, 2013, at 12:58 AM, TEBuddy wrote:

    And could we not potentially even think about blaming the American people for their greed that led to inflated home prices, homeowners cashing in on it, people buying more than they could afford, people not paying thier obligations, and thus the people causing the entire collapse??? Has this concept of personal responsibility ever crossed your mind. How many people out there profited big on home sales??? Didn't they think about how damaging it was to sell to people that couldn't afford it? Or how about the bank that gave the loan? No, we will blame the company about 5 times removed from the transaction, who only does fact checking when claims are filed, vs the bank who should have fact checked before giving loans. How could AIG accurately assess their risk when the banks were feeding them bogus quality ratings of the debt, based on lies many time by Americans. No sense of personal responsibility I guess, easier to point fingers.

    The lawsuit against the Government only came out months after the Government blocked AIG's right to seek damages against the financial institutions that cashed in 100% on claims based on bogus data. The evidence of this is out there, and the Government would not allow AIG to take them to court, which is AIG's right.

  • Report this Comment On January 11, 2013, at 2:25 AM, SuntanIronMan wrote:

    AIG shareholders could be incredibly ungrateful AND the government could have given AIG unfair terms. Both could be true. One being true doesn't make the other false. The first one definitely seems to be true. Not sure about the second.

  • Report this Comment On January 11, 2013, at 10:01 AM, TEBuddy wrote:

    And what makes you think AIG shareholders are ungrateful. The fact of the matter, 100% of the idiots saying the lawsuit is an outrage know nothing about why it was ever brought about.

    I have no reason to grateful to the Government, and I am a shareholder, but only recently. I lose nothing from AIG going bankrupt then. But I know why Greenberg is going to win his case, and the Government could have easily avoided it. But the Government denied AIG a simple right to seek damages from the counter parties that actually caused the problems and who got off free and clear. But then I guess since the American people were the main reason for the collapse, then maybe taxpayers should be held liable. Anyway, since no one seems to even comment on why the case is even being brought against the Government, then you shouldn't be writing about it.

  • Report this Comment On January 11, 2013, at 10:19 AM, XMFGrgurich wrote:

    TEBuddy, as an AIG shareholder, you should be grateful the board didn't join in the suit, if for no other reason than the horrible PR that would have resulted. AIG is currently running a national ad campaign thanking the American taxpayer for the bailout. To then turn around and sue the American taxpayer?

    No, the board did good here. There wouldn't even be shareholders sans bailout.

  • Report this Comment On January 11, 2013, at 2:21 PM, TEBuddy wrote:

    I don't want AIG to sue the US Government, but they have every right to, just as Greenberg and shareholders do. I want AIG to be allowed to take legal action against the counter parties, but the Govenment blocked that. The Government overstepped its bounds, plain and simple, to allow those banks to profit free and clear from the bailout they gave them through AIG. We could probably find out how many Government officials own stock in those financial institutions they were protecting from AIG, and made AIG foot the bill for.

    The banks and taxpayers caused the problems.

  • Report this Comment On January 11, 2013, at 2:31 PM, TEBuddy wrote:

    And the market doesnt seem to agree with them not pursuing billions in damages as very good. This isnt some million dollar settlement, we are talking about $20B for Greenberg that only owned a small part of AIG. AIG could have pulled more than $20B from counterparties legally, in a court of law, with public evidence.

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