Why Hank Greenberg Should Absolutely Win (Or the Astonishingly Duplicitous Behavior of the Treasury and Fed)
The Treasury and Fed charged the TBTF banks a 2.5% interest rate and AIG a 14% interest rate
or about 5X higher.
2. In its 74 year history, no 13(3) borrower had ever been forced to hand over equity or voting control
3. Between September 16th and 21st, the government switched term sheets on AIG and somehow couldnt find the original one for trial. Guess what
1st term sheet never mentioned preferred equity. The 2nd term sheet was materially worse.
4. Geithner then told AIG that if they didnt accept the new term sheet, he was going to immediately call due $37B in short-term demand notes.
5. As a result, AIGs Board had no choice but to accept the deal. This is called a Hobsons choice.
http://en.wikipedia.org/wiki/Hobson's_choice
6. Fed and Treasury knew they couldnt legally hold the equity, so they had their teams of lawyers doing backflips trying to figure out an end-around. Outside counsel joked about how creative they were going to have to get.
7. So they created a trust without precedent and then picked the trustees for their  guess what  close ties to the Fed.
8. Oh, and then they decided that the trustees should NOT CARE ABOUT THE MINORITY SHAREHOLDERS
and then lied about it at trial.
9. Fed/Treas then engineered a 20 to 1 reverse stock split that applied ONLY to issued, but not authorized shares, to avoid a shareholder vote. That way, the common shareholders wouldnt have a say.
10. Fed/Treas also gave tens of billions in a backdoor bailout to the TBTF banks who were AIG counterparties. The TBTF banks GOT PAID AT PAR from AIG
which is absolutely ludicrous under the circumstances (and AIG had no say).
11. The Fed/Treas also insisted that they didnt control AIG, but
12. Finally, the entire time, before any equity was even considered, Fed/Treas knew that the loan was FULLY SECURED, even with a 25% haircut applied to AIGs collateral. The equity, folks, was punitive.
AIG and Fannie Mae and Freddie Mac were selectively punished by the Fed/Treas for political reasons, not because of the fundamentals of the companies. One may not like Hank Greenberg or the GSEs
but this is America man and the rule of law should trump dislike for plaintiffs. Thats what makes our capitalist society work. I mean, no offense to Venezuela or Russia where the rights of shareholders can be trampled on a whim, but I like it here
where that sort of thing isnt supposed to happen. Ever.
Oh, and a tip of the hat to David Boies, a true stone cold bad@*$. Its unfortunate, however, that it takes a cantankerous billionaire who can afford DBs team for years and years, to bring this fed/treas behavior to light.
Up next, FNMA and FMCC