AIG Lawsuit (Cont’d.)

As we have tried to make clear, the press coverage of the lawsuit against Uncle Sam for the seizure of AIG stock during the 2008 financial meltdown has not been journalism’s finest hour in terms of displaying an understanding of legal theories underlying this mega-kerfuffle. But it turns out that someone, it turns out, is at least thinking about it. See Tim Cavanaugh, 5 Reasons the Government Might Lose the AIG Lawsuit, National Review on line, Oct 10, 2014.

Actually, we have trouble understanding how Mr. Cavanaugh’s “5 Reasons” add up to a clear cut victory for the plaintiffs, but we sure dig his Reason No. 6 — evidently thrown in as a bonus-afterthought to the other five reasons. It contains an inverse condemnation claim (taking of property without compensation), although Mr. Cavanaugh does not use that term.

After all the pros and cons of the government’s asserted graciousness or its punitiveness in bailing out AIG, and of the current plaintiffs’ (former shareholders of AIG) asserted ingratitude in trying to bite the hand that bailed them out back in 2008, the stark fact remains that Uncle Sam did seize some 80% of AIG’s voting stock, and with it control of AIG, which he used it to force AIG to grant a sweetheart deal to the big-boy banks that had taken out insurance policies from AIG against default of mortgage-secured bonds, and now wanted full 100% payment of their value as if nothing had happened, rather than a reduced payment that AIG was trying to negotiate with them, until Uncle Sam stepped in, flashed all that AIG stock it had seized, and forced AIG into that sweetheart deal with the insured banks. And by the way, the plaintiffs also complain that Uncle Sam forced AIG to give up their claims against those insureds who, according to AIG, misrepresented the quality of the bonds being insured.

For a summary of last week’s Bernanke testimony, see Bernanke Testifies That He Was Reluctant to Lend Money to A.I.G., NY Times, Oct. 11, 2014, at p. B7.

Anyway, if you wish to keep up with this controversy (which in our opinion at least is the biggest and most unique inverse condemnation claim in history) we recommend you read Mr. Cavanaugh’s article.