Will AIG Sue the Government?

The $85 billion credit line extended to the collapsing insurer came loaded with a 14.5 percent interest rate. Greenberg has built a case that he and other shareholders were robbed of tens of billions as a result, and that the government violated the Fifth Amendment. That is, even if the government is trying to stave of total economic ruin, it does not have the right to seize bad assets.

AIG has since paid back the bailout and then some. The government has logged a nice profit of about $22 billion, and on the back of a public-relations campaign highlighted by the slogan “Thank you, America,” the tenuous relationship between AIG and its bailout partner seems to be healing. That is, minus Greenberg and his bone to pick.

The New York Times Reports: “The choice is not a simple one for the insurer. Its board members, most of whom joined after the bailout, owe a duty to shareholders to consider the lawsuit. If the board does not give careful consideration to the case, Mr. Greenberg could challenge its decision to abstain.”

The case, filed in both New York and Washington D.C., was dismissed by a New York judge in November. In D.C., a judge has allowed the case to proceed and is waiting on AIG’s decision on whether to join. When U.S. District Judge Paul Engelmayer decided to dismiss the case in New York, he ruled that the NY Fed acted in the best interest of the U.S. economy and prevented what would otherwise have been a far more devastating financial collapse. While this is in many ways an endorsement of the government’s action, it is by no means clear that the D.C. judge will see the bailout in the same light.

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