Exclusive Interview: Why Former AIG CEO Hank Greenberg Sued the Government for $25 Billion

Hank Greenberg, former chairman and CEO of AIG (NYSE: AIG  ) , sued the government last year for $25 billion, related to the 2008 bailout of the company he founded and built. 

The common response when hearing that AIG's old boss is suing the government that saved his company is something between utter disgust and anger. It feels like the ultimate "thanks for nothing" move.

I sat down with Mr. Greenberg last week and asked him to explain the motive for the lawsuit. Here's what he had to say (transcript follows):

Morgan Housel: You've recently been involved in a $25 billion lawsuit against the government, specifically the New York Federal Reserve.

Hank Greenberg: Not involved. We have commenced a lawsuit against the U.S. government.

Morgan Housel: Some people, when they hear about the lawsuit after the AIG bailout, they respond with a sense of shock. What was the purpose of that lawsuit?

Hank Greenberg: Several things. First of all, we have a Constitution in the United States, and there's a provision against unlawful taking by the government. You can take anything you want, but you have to pay for it.

If you go back into the book and you see it started with Spitzer, it led to management changes and those management changes led to the company becoming deeper and deeper into the need for liquidity, so they sought liquidity from the New York Fed, from the window. They were turned down.

They tried to get a broker-dealer license, which would give them access to the window. They were turned down.

At the very last moment, Hank Paulson, then Secretary of the Treasury, calls Willumstad, who was then the Chairman of AIG and CEO. He says, "There's only one deal we're going to give you." That was $85 billion at 14.5% interest. At the window, if they were borrowing, it would have been 1.5%.

As an aside, they opened the window to the Arab Bank, which was then 26% owned by Libya when Gaddafi was running it, so Libya could get access to the window, but AIG couldn't.

So "14.5%, $85 billion, and we're taking 79.5% of the equity of the company," and incidentally he tells Willumstad, "You're fired." Here's the Secretary of the Treasury, calling a public company CEO and firing him. Is this America? Does the government fire CEOs? I hadn't heard that before.

He then says to Willumstad, "Sign that agreement" that I just related to you.

He says, "Just fire me. I'm not signing the agreement," so Paulson sends in his replacement, a guy called Ed Liddy who's on the Board of Goldman Sachs. He signs the agreement, still as the director of Goldman Sachs and resigns from Goldman Sachs three days later, retroactively. Very unusual, to say the least.

Of the $85 billion that they lent AIG ... AIG had about $800 billion of assets. They had plenty of collateral. They didn't have to take 79.5% of the equity at the time.

Now you've got the $85 billion; $60 billion goes out the back door almost immediately, $12 billion goes to Goldman Sachs, of the $85 billion. They force AIG to give a complete release to those who got the back-door bailout so AIG can't sue them later on for unlawful pass-through, and they put a gag order on AIG that they can't talk about it.

It took us years to get the information that's in the book, and it's all verified in there. Why are we suing the government? I just told you why. 

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  • Report this Comment On March 12, 2013, at 11:08 AM, SkepikI wrote:

    I wonder when there will be more revelations regarding the damage Hank Paulson did as Treasury Sec. There might be a book in that subject...I'd like to read that one.

  • Report this Comment On March 12, 2013, at 5:15 PM, Khizhim wrote:

    "Hank Greenberg, former chairman and CEO of AIG (NYSE: AIG), sued the government last year for $25 billion, related to the 2008 bailout of the company he founded and built."

    Come on, Morgan...

    From AIG's site:

    http://www.aig.com/our-90-year-history_3171_437854.html

    "AIG traces its root to 1919, when American Cornelius Vander Starr established a general insurance agency, American Asiatic Underwriters, in Shanghai, China. Since then, an enterprising spirit, ingenuity, and tenacity have built the company into one of the world’s leading insurers. Today, AIG is focused on what it has been known for since the beginning: the willingness and ability to provide insurance coverage to meet the diverse needs of its clients."

    C. V. Starr "founded" AIG although, no doubt about it, Greenberg **WAS** AIG for many years. C. V. Starr was no slouch, but it can't be denied that Greenberg built AIG into a worldwide colossus.

  • Report this Comment On March 12, 2013, at 7:01 PM, toastedseeds wrote:

    While there certainly were some strange dealings back in 2008 it still seems inescapable that AIG was introuble before that because of the risk they took on. Hell all of us could get out of our troubles if only someone would lend us money at 1.5%. Problem is there isn't a bank around that would do that for a regular person in their time of need. I have a hard time feeling bad for Greenberg just because he/AIG couldn't get a sweetheart deal.

    ts

  • Report this Comment On March 13, 2013, at 5:30 PM, Cedarjones wrote:

    Eliot Spitzer represented the very worst in government as New York's A. G. (is that Attorney General or Aspiring Governor?). He abused the office to promote a non-event at AIG just so he could get make the newspapers and get elected to the governorship. Meanwhile, at AIG without Mr. Greenberg to control the risk taking, the company loaded up on mortgage-backed products. Was there a crime? Yes there was. But Eliot Spitzer got away . . . at least for a while.

  • Report this Comment On March 14, 2013, at 10:36 AM, WD562 wrote:

    Sorry AIG - no sale. AIG had a choice of taking or not taking the deal. As a taxpayer, I don't like the idea of bailing out businesses for their folly. As an investor, I like businesses that don't get themselves into such trouble that my investment goes down the tubes. AIG should thank the government, not try to squeeze more money out of the sugar daddy.

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