Maurice Greenberg, the former CEO (and major shareholder) of AIG, the insurance giant that was on the brink of bankruptcy before being bailed out by the government in 2008, is suing the government, demanding billions of dollars in compensation.
Why? Greenberg claims that “the government ripped him and other stockholders off by failing to negotiate more generous terms when it took nearly 80 percent equity in the firm, diluting their stakes”.
Greenberg’s suit ignores the fact that if the firm had gone bankrupt, his shares would have been worth nothing (or close to it). It also ignores the fact that the whole reason AIG was in trouble was because of its own risky and irresponsible behavior. AIG extended their guarantee to securities backed by sketchy subprime mortgages, which famously blew up, bankrupting a number of banks (including Lehman Brothers). The government stepped in because AIG was “too big to fail” — its collapse would have imperiled the world economy.
If you ever wanted an example of what’s wrong with our financial sector, this is it. Capitalism is a dance between risk and reward. The higher the potential reward, the higher the risk of losing your money. But the banking industry isn’t actually taking any risks because they expect to get bailed out. This means that there is no incentive to act responsibly with our money and our economy.
And this lawsuit takes it one hypocritical step further. Not only do they expect to get bailed out, but they have the chutzpah to demand more money.
There is only one solution. We need to break up every financial institution that is “too big to fail”. That way we can let them fail when they make stupid and irresponsible decisions.
The GOP claims to be the party of personal responsibility. They oppose a social safety net because they claim that it provides a disincentive to work. Where are they on this issue?