Next week, a Washington court will revisit extraordinary and never before taken actions of the U.S. government six years ago. It isn’t a mock trial of government intervention in the financial markets but rather a real time lawsuit arguing the government took private property on the cheap.
The case centers on one of those most controversial and criticized actions taken in the fall of 2008 as the global financial markets sputtered to a halt, sending the economy into a tailspin. After rescuing dozens of banks, the Federal Reserve provided an $85billion lifeline to a highly unregulated institution the Fed technically had very little responsibility for: American International Group.
A.I.G. then, as now, was a huge player in the international financial derivative market. The company insured billions of dollars of those esoteric deals and was on the hook when they went south. The Federal Reserve pumped money into the company, backing up its insurance commitments. For its money, the central bank took a majority ownership stake in the company.
A.I.G.’s former CEO Maurice Greenberg saw the federal government commandeer a chunk of his ownership and that of other shareholders. He’s now suing, claiming the government didn’t have the legal authority to take it. And the government got it at a bargain.
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Expected on the witness stand in the week ahead will be a parade of top government players during those dark economic days six years ago, including former Treasury Secretaries Hank Paulson and Timothy Geithner and former Federal Reserve Chairman Ben Bernanke.
With all the theater and compelling characters of a television drama, the case pits Wall Street’s shareholder power against the government’s caretaker actions.
Tom Hudson hosts The Sunshine Economy on WLRN-FM. Follow him on Twitter @HudsonsView.