By Dave Palmer
The 2008 mortgage bubble burst resulted in many banks failing. However, some of the banks, including AIG, were deemed “too big to fail”, and were therefore given part of a massive $800 billion bailout from the government. AIG received a $182 billion share of the bailout. Promptly thereafter, AIG paid six and seven figure bonuses to its corporate bigwigs and held junkets for top salespeople at the taxpayer’s expense.
However, as the old adage goes, “No good deed goes unpunished.” No sooner than the U.S. Treasury cashed out its stock holdings to yield a $22.7 billion profit, AIG stockholders decided that it would be a good idea to sue the government for $25 billion. The AIG shareholders claim that the government somehow cheated them, that the government failed to provide them just compensation when the Treasury bought 80% of the company’s total holdings.
Former inspector general for the financial industry bailout Neil Barofsky said AIG joining the suit would be a “giant middle finger” to the American taxpayer. For once, I agree with someone involved in the financial industry bailout.
Virtually every economics class teaches that the stock market is a risky investment. If the company profits, the shareholders profit, and if the company loses money, the shareholders lose as well. Essentially, the stock market is the world’s largest casino, and all of its “investors” are really gamblers betting on the success or sometimes failure of a company.
For AIG shareholders to pretend that they weren’t taking a risk in a company that was deemed “too big to fail” on the brink of its actual failure are either too blind to see reality, or too stupid to accept it. The company accepted the terms of the agreement with the government and accepted the money. If the shareholders were not brought into the loop, that is the fault of the executive board, not the fault of the government.
Therefore, it is the AIG board of directors who should be held in civil liability. They failed to inform their shareholders of the potential consequences of the bailout, and decided to take the bailout money over the shareholder’s vote. They were the ones that failed to take their fiduciary duty into account as the check cleared and bonuses were paid.
The AIG shareholders should also take into account what might have happened if AIG was allowed to go through the standard bankruptcy procedure. Their shares could be worth far less than they are today, or be completely worthless if the company folded.
Instead, AIG shareholders are choosing to bite the hand that saved their investment from almost certain ruin. They are attempting to take the governments profits from what turned out to be a wise investment for the government as ill-gotten gains for themselves.
Any judge worth their salt should immediately dismiss this case on the grounds of gross frivolity and plain idiocy. Suing the government for saving your investment from complete failure is akin to suing a fire department for water damage caused by putting out as fire in your home. However, it seems that AIG shareholders of that particular mind frame.
Hopefully, this nation will never face a crisis as large as the mortgage bubble of 2008 again through smart regulation and breaking up the banking oligopolies. But if it does, I call on the government to be wise enough to remember this lesson and allow smaller banks to buy out any who are “too big to fail” piecemeal to make them more manageable sizes.