AIG Lawsuit: Why American International Group Might Sue the Government
Pick your jaws back up off the floor, Washington. Don’t act so surprised that American International Group is now considering a lawsuit about the very government bailout that saved it from extinction in 2008. It’s disorienting to see the company most associated with the 2009 financial crisis and subsequent bailout now considering suit over that very bailout, but dig into it and it makes sense.
I see this case from two angles. First, AIG’s potential course of action is explainable in a very concrete way that puts the firm in a more reasonable light. The second is more interesting — the story and the reaction to it epitomize the moral struggle between old and new mores. The discord we feel over hearing that AIG may bite the hand that fed it is a purely emotional reaction to a changing moral landscape.
Know that AIG’s board hates this story. Most likely, they would prefer Maurice "Hank" Greenberg and his lawsuit to permanently move to a tax haven in the South Pacific and melt into the ocean. Greenberg is the man who actually filed this suit in 2011. He also happens to have been the company’s CEO for 37 years until his 2005 resignation amid investigation for accounting fraud.
He never was a fantastic executive. AIG’s founder, Cornelius Starr, handpicked Greenberg to replace him in 1968, and even he didn’t like him. In 2005, the firm’s auditor, Price waterhouseCoopers stated that it would “no longer vouch for the firm's books if Greenberg stayed on as CEO." There was even speculation that the government only refrained from bringing the same hammer down on AIG as they did on Arthur Andersen because of the size of the firm that they’d be sentencing to death. So this tale has its villain, the very picture of greed and malfeasance, Hank Greenberg.
The 87-year old Greenberg’s company, Starr International Co. (poor Cornelius’s good name) owns about 9% of AIG, and he harbors all the ill will toward it you’d expect from an ousted, dyspeptic CEO. He brought suit against the government last year in two jurisdictions claiming that the 14% terms of the loan were usurious and unconstitutional. Or something. Basically, he saw the government’s profit on reprivatizing AIG shares (which he projected to represent a taxpayer loss in 2010) and wanted a piece. One jurisdiction threw out the case, but one didn’t.
The media’s insistence of the preposterousness of this case betrays a short memory of how unprecedented all of 2007-08’s emergency measures were. No one ever ascertained exactly what the Constitution has to say about the terms of an improvised loan extended to a supercomplex institution by a Treasury backstopped by the Federal Reserve. The document is clear on government taking private property in the Fifth Amendment, but does a $182 billion cash infusion constitute an illegal seizure? This is uncharted territory, In that way, Greenberg’s suit is a positive. He may be a bastard, but the constitutionality of the bailout has until now been quaint academia. There stands a chance that Greenberg could win.
AIG’s board, meanwhile, has an obligation to their shareholders. They were not the ones who brought this suit, but they are in a dilemma. If a Greenberg win manages to claw back some of the $22 billion profit realized on its shares, AIG will have to answer to its other shareholders as to why they did not position the company to benefit. This puts them at risk for another lawsuit to that effect. Moreover, if AIG gets involved, there is thought to be a greater chance that the government will settle.
So the board of AIG is obliged to formally consider suing the government for rescuing them, which they’re doing this very moment a few blocks south of me.
The impulse to call them ungrateful is a disingenuous aspersion. American International Group is a publicly traded company that exists to make a profit. It doesn’t have feelings, and it shares that characteristic with the government. Uncle Sam may use emotion to determine its agenda and interface with the public, but it is also a supercomplex organization tasked with the business of running the country. Treasury did not bail out anyone because it liked them (suspicion of nefarious collusion with certain firms is a whole different topic) but to avoid systemic catastrophe. There were no fuzzy affections that AIG needs to repay.
The American public has a tough time understanding that. Part of the difficulty is the natural human desire to anthropomorphize, from our computers to other living things to companies. (It doesn’t help that some of them are legally people.) But we also find ourselves alienated by the motives of profit maximization and cold calculations. And that’s what the real meat of this AIG story is.
Our culture stands today near the midpoint of a long fight between old morality and new morality. The tension between the two isn’t anything new.
Emotionally, personally, microcosmically, we are attuned to the old morality. Broadly, it is a value system derived from Enlightenment principles sitting atop Protestant ethics. The abstracts of our system of justice follow this set of ethics — do unto others, respect for the individual, pro-social compassion, etc.
The second ethical system is that of economics, and it makes no consideration for any of that. The practices are regulated, but ultimately the goal of acquisition is the sole dictum in this ethics. It is amoral.
This AIG story is powerful because it collides our competing ethical orientations into one another. The construct of public relations is really the only arena in which these two align, where we can interpolate emotions and soft perceptions into profit calculus. It’s a nice thought, but it cannot bridge the vast distance between the two. When the chips are down, a company will reveal itself to be no more or less than what we want it to be — a machine designed to make money.
We could argue that, being a corporation, AIG has an ethical duty to consider joining Greenberg’s suit. It’s too cute a notion. I think the better way to view it is that the space in which AIG operates fully substitutes ethics with legality, and that this legality will almost always be the ceiling of pro-social behavior. People go above and beyond to help others, and the recipients remember that help for longer than they need to. Companies make money, and that’s it. Too many commentators have accused AIG of not being the former. In doing so, they neglect to appreciate how wide the division is between these two senses of justice that pull at our society.