Hank Greenberg, former chairman and CEO of American International Group Inc (NYSE:AIG) , sued the government last year for $25 billion, related to the 2008 bailout of the company he founded and built.
The common response when hearing that AIG’s old boss is suing the government that saved his company is something between utter disgust and anger. It feels like the ultimate “thanks for nothing” move.
I sat down with Mr. Greenberg last week and asked him to explain the motive for the lawsuit. Here’s what he had to say (transcript follows):
Hank Greenberg: Not involved. We have commenced a lawsuit against the U.S. government.
Morgan Housel: Some people, when they hear about the lawsuit after the American International Group Inc (NYSE:AIG) bailout, they respond with a sense of shock. What was the purpose of that lawsuit?
Hank Greenberg: Several things. First of all, we have a Constitution in the United States, and there’s a provision against unlawful taking by the government. You can take anything you want, but you have to pay for it.
If you go back into the book and you see it started with Spitzer, it led to management changes and those management changes led to the company becoming deeper and deeper into the need for liquidity, so they sought liquidity from the New York Fed, from the window. They were turned down.
They tried to get a broker-dealer license, which would give them access to the window. They were turned down.
At the very last moment, Hank Paulson, then Secretary of the Treasury, calls Willumstad, who was then the Chairman of AIG and CEO. He says, “There’s only one deal we’re going to give you.” That was $85 billion at 14.5% interest. At the window, if they were borrowing, it would have been 1.5%.
As an aside, they opened the window to the Arab Bank, which was then 26% owned by Libya when Gaddafi was running it, so Libya could get access to the window, but American International Group Inc (NYSE:AIG) couldn’t.