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Judge sees ‘dilemma’ in government defense of AIG bailout

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April 22, 2015 at 9:47 pm #5554

dpsims
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Judge sees ‘dilemma’ in government defense of AIG bailout

By Patrick Temple-West

4/22/15 5:38 PM EDT

A federal judge on Wednesday leaned firmly against parts of the U.S. government’s closing argument in its fight with shareholders of American International Group Inc — led by former CEO Hank Greenberg — who are claiming $40 billion in damages stemming from the company’s bailout in September 2008.

After 37 days of trial, attorneys for the shareholders and the Justice Department made their final pleas before Judge Thomas Wheeler in the case, which included star witnesses Ben Bernanke, Timothy Geithner and Henry Paulson.

At one point during Wednesday’s hearing, Wheeler sounded skeptical of an argument by Justice Department attorney Kenneth Dintzer that there was no “regulatory taking” violation under the 5th Amendment when the government took an 80 percent stake in AIG.

“There’s no question in anybody’s mind that there had been change in ownership … the government was running the show,” Wheeler said.
“The dilemma I’m having, I’m listening to your arguments but nevertheless in that very first week the government is in control,” Wheeler said. “How can it be that there wasn’t some sort of illegal exaction of taking for that to have happened?”
In a different exchange with Dintzer, Wheeler raised concerns with the government’s profit-taking after it acquired its AIG stake.
“The government acquired the stock without paying anything for it and then pocketed the revenue,” Wheeler said. “I mean, c’mon.”
Earlier in the day, the attorney for Greenberg and other AIG shareholders argued the government illegally extracted 80 percent of the company as a condition for a $85 billion loan during the September 2008.
“Somebody had to be a scapegoat” so that 2008 presidential candidates Barack Obama and John McCain could “support the ‘TARP’ bailout,” said David Boies, chairman of the law firm Boies, Schiller & Flexner who is representing the AIG shareholders. “The government made a political statement … to demonize AIG.”
During Boies’s arguments, Wheeler offered a favorable analogy for the shareholders, saying their situation sounded similar to a partial government seizure of a home: “We’re only going to let you live in the master bedroom.”
Maurice “Hank” Greenberg, AIG’s ex-chairman and CEO, was in the courtroom but declined to answer questions after the hearing.
A ruling in the case would come “in the relatively near future,” Wheeler said. But Boies said that decision is at least months away.
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April 23, 2015 at 4:35 am #5555
inthetube
Participant
Could set a beautiful precedent for the warrants.

Just noticed that Judge Wheeler is a colleague of Judge Sweeney, looks like the Judges at the U.S. Court of Federal Claims know what they are doing.
- This reply was modified 12 months ago by inthetube.
April 23, 2015 at 12:38 pm #5564

dpsims
Participant

I think Wheeler is a very conservative judge, from what I read a while ago.

Maybe the two are discussing these cases behind closed doors? I think it would be hard not to do so.

April 23, 2015 at 8:41 pm #5565
rosen62
Participant
Not sure about precedent. I doubt it.

The AIG case is the Federal Reserve acquiring an equity stake or at least being behind the bailout. Ours, is just Treasury. And HERA allowed Treasury to act as a creditor with the power to purchase securities from Fannie and Freddie. This was strictly done so that Treasury could infuse funds into the companies buying shares. Immediately after HERA, companies enter into conservatorship and then sold Sr. preferred shares and warrants to Treasury signing the PSPAs agreements. I’d say nothing to discuss here.
- This reply was modified 11 months, 4 weeks ago by rosen62.
April 24, 2015 at 8:53 am #5567

dpsims
Participant

Rosen,
Glad to see you in here.

I agree the cases are apples and oranges, figuratively. However, HERA allowed Treasury to take an equity position prior to 2009, not after. The warrants could be considered a place holder for that position. However, altering the SPSPA appears to be increasing the equity position from 79.9% of the stock to 100% without compensating shareholders or having the authority of Congress.

Treasury is trying to get around this by saying that the Sr. Preferred was not a loan. But that means that the periodic commitment fee wasn’t really valid either, as this is something traditionally found in debt. I have not heard of another preferred stock with a periodic commitment fee, ever.

Treasury has no defense here. Obama is punting to the next administration. That much is clear.

April 24, 2015 at 11:25 am #5568

inthetube
Participant

Not sure if it is Obama in person, but I would say there are enough people in Government who have a vested interest in receiving several billions in (more or less) free spending money, especially with an election coming up.

The Reps play here (I think the Grassley letter is a good start) would be to stop this flow of cash and force the Obama administration to make some electorally bad budget cuts and/or allow them cash to spend to buy votes.
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