Goldman, JPMorgan Planned Private Rescue of AIG

It never happened, of course. But AIG's former CEO Maurice Greenberg believes the federal government didn't have the authority to step in.
Iris DorbianOctober 3, 2014
Goldman, JPMorgan Planned Private Rescue of AIG

Just days before the 2008 federal bailout of American International Group, Goldman Sachs CEO Lloyd Blankfein and JPMorgan Chase CEO Jamie Dimon supposedly told federal regulators that they were planning on a private rescue of the insurance giant, reports Bloomberg. Such is the latest revelation to come out of a trial featuring several big players in the financial crisis bailouts.

bailoutThe witness, Thomas Baxter, general counsel of the New York Federal Reserve Bank, recounted in the U.S. Court of Federal Claims the details of a September 12, 2008, meeting between financial regulators and creditors of Lehman Brothers Holdings, which was on the verge of bankruptcy. There he recalled to Judge Thomas Wheeler that when AIG’s name was broached in the meeting, both Blankfein and Dimon insisted, “That’s another problem we’re taking care of.”

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This led Baxter to conclude that AIG was another company whose struggling balance sheet should be of concern to the government. However, based on the comments Blankfein and Dimon made, “it was being addressed by the private sector.”

As Bloomberg relates, the private bailout never occurred and on September 16, 2008, the New York Fed hired JPMorgan’s then counsel Davis Polk & Wardwell to draw up the papers for a bailout deal, said Baxter in court.

The trial is part of Starr International’s (the largest AIG investor at the time of the financial crisis) lawsuit against the U.S. government about the terms of the AIG bailout. Starr, whose chairman is former AIG CEO Maurice Greenberg, is seeking more than $25 billion for losses incurred when the government took over AIG. Greenberg contends that the government lacked the legal authority to take an 80% stake in AIG in exchange for a $85 billion loan with very high interest rates — as much as 14%, according to media reports.

Baxter’s testimony follows that of the Fed’s general counsel Scott Alvarez who defended the high interest rate that the Fed set for the AIG bailout loan, saying it “was meant in part to prevent shareholders from reaping a ‘windfall’ from a company that was headed for bankruptcy without a government rescue,” writes Bloomberg.

Source: Bloomberg: Blankfein, Dimon Pursued Private AIG Bailout, Lawyer Says

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