The directors of insurance giant American International Group wisely decided Wednesday not to join a lawsuit that seeks billions of dollars from taxpayers. That's a relief. The notion of AIG suing over its $182 billion government rescue package was outrageous. Even if AIG prevailed on the legal argument, it would have trashed whatever public standing it still has.
Most people know the sorry saga of AIG. The rogue financial giant took enormous risks. It failed to properly manage those risks. When the financial crisis hit in 2008 and AIG teetered, the government quickly stepped in because AIG was deemed too big to fail. The repercussions -- AIG was on the verge of paralyzing global credit markets -- would have shocked the world economy. So U.S. taxpayers shouldered the burden of a bailout.
AIG requested government help. The terms it received were tough -- the government took roughly 80 percent of the company's equity and charged a 14.5 percent interest rate on the money it initially loaned.
Too tough? Yes, according to former AIG Chief Executive Maurice Hank Greenberg, who is the driving force behind the lawsuit that seeks to second-guess the terms of the bailout.
Greenberg testified before Congress in 2009 that the government should have bailed out AIG, but on more advantageous terms for shareholders like him. In the world according to Greenberg, the ideal option would have been to let AIG's financial units go bankrupt, but only after the U.S. Federal Reserve had guaranteed them.
Say for the sake of argument that he's right. If the Fed had guaranteed AIG, saying it would have made good on every possible loss, then the rest of the bailout might have been unnecessary. Shareholders like Greenberg might have come away with more value than they did.
That issue is at the heart of the lawsuit. The federal loans to AIG have been repaid with interest. The government made a $22 billion profit from its rescue. Greenberg wants that money and then some: The lawsuit seeks $25 billion. Who would be on the hook? Taxpayers.