Hank Greenberg / STAR International's suit against the Federal government over the way it seized control of AIG during the financial crisis is going to be a very interesting case. Naturally the lamestream media is missing most of the key facts, so that what we generally are hearing about the case makes it sound totally ridiculous.
For example, there was a shareholder vote before the takeover, and the shareholders voted against being bailed out by the government. The government then proceeded to seize a nearly 80% stake in the company anyway.
Greenberg's key argument is that Fifth Amendment rights against seizure of property by government without adequate compensation were violated. Detractors point out that AIG would otherwise have gone bankrupt. However, that bankruptcy would have merely been a short-term liquidity problem and not a problem of long-term valuation. AIG's assets exceeded its liabilities once the very short-term "mark to market" problem from the depths of the crisis had passed. Had AIG gone through a bankruptcy reorganization, it would have continued in business and shareholders would still have had some value left over. The bankruptcy merely would have provided that creditors' claims be recognized in an orderly manner; after all creditors had been satisfied, residual shareholder equity would have still been there.
The US Government has already asked the courts for summary judgment and a dismissal, and have been denied. The case will proceed to trial.
Once you burrow below the superficiality and emotional judgments of reporters who know little about law and less about finance, the case has some intriguing issues: would shareholders have been better off had AIG been allowed to go bankrupt, compared to having their equity diluted four times over? and what happens if Greenberg / STAR win? what do they get?
AIG itself was not "bailed out." It was merely the vehicle by which the government bailed out other companies. One can argue that the US "had to" bail out those other companies to prevent further damage to the world financial system. Perhaps so. However, that is not the issue in the lawsuit. the issue in the lawsuit is, "is it permissible for the US government to use unconstitutional methods to address an emergency, no matter how dire said emergency seems to be at the time?"
I'll be curious to see how it all plays out.