If you have been watching television in the last few weeks you may have noticed commercials from American Insurance Group (AIG) thanking you and your fellow taxpayers for bailing them out in the fall of 2008. You would also notice them boasting of having repaid the government in full. If this were your only indication, you might think that everything was swell between the insurance company and its savior, the US government. However, a report on Tuesday indicated this is far from the true as the board of AIG is considering joining a class action lawsuit against the US government.
The lawsuit currently pending for $25 billion was filed in 2011 by Starr International Co., a significant shareholder of AIG. The company contends that the federal government’s imposed interest rates on the bailout loans, fifteen percent, were unnecessarily harsh. In making the agreement, Starr contends, AIG shareholders had been deprived of their due process rights. The government originally provided the insurance giant with $182 billion in loans to keep it afloat and ultimately ended up profiting about $22 billion on the agreement when the government recently sold its last shares.
As could be expected, public outcry was pervasive once the report came out that AIG was considering joining the suit, with many shareholders saying they would dump their stock if the company pursued such a course of action. A spokesman from the New York Federal Reserve contended that AIG’s only other option in 2008 was to go bankrupt in which case shareholders would have lost all value, essentially rendering any lawsuit on the grounds of onerous terms to be ridiculous.
Business Section: Investment Ideas
What will be the repercussions if AIG chooses to join in on this class action lawsuit? It would not surprise anyone if large numbers of their shareholders composed of common taxpayers chose to dump the company’s stock. After all, it would be a figurative “slap in the face” to the government and those who contributed to the bailout funds.
Written by Dan Connelly