Let’s not shoot anyone into space. OK?

Pretty funny – Rolling Stone histrionician Matt Taibbi flays Hank Greenberg – but basically agrees with him.

The vivisection comes from the headline:

Hank Greenberg Should Be Shot into Space For Suing the Government over the AIG Bailout

(Pardon the mixed metaphors, but I’m channeling my inner Matt.)

I’d been meaning to post on the AIG-may-sue-the-government-that-saved-it kerfluffle, but I held back suspecting it would be gone in a couple of days, as has come to pass. The board had to listen to Greenberg to protect itself from being sued by him for failing to look out for their shareholders.

Meanwhile, there’s another lawsuit out there, too – another reason not to drop a toe into these fetid waters. Just too much for a part-time blogger to follow.

Anyhow, here’s what got the Rolling Stone financial columnist into full Vampire Squid mode:

A lot of people are wondering what to think about the news that the board of AIG is considering joining the lawsuit filed by former AIG head Maurice “Hank” Greenberg against the Fed and the U.S. government – a suit that one news outlet describes as charging the state with handing out an “insufficiently generous bailout.”

He goes on a bit about how awful the idea of such a lawsuit is. After a bit, he removes the froth and notes:

But here’s the funny thing about the lawsuit filed against the government: It isn’t all wrong. In fact, parts of it are quite on the mark.

Greenberg’s lawsuit, as Taibbi accurately portrays, contends that the AIG bailout was generous, but the bailout protected banks like Goldman Sachs while eviscerating AIG. This destroyed AIG’s shareholders while protecting the banks. A simple Yahoo chart states the case nicely:

goldlman aig

Goldman Sachs is the blue line. AIG, of course, is the red line.

AIG had, in essence, insured against loss many of the financial instruments Goldman and other big banks had entered into. Normally when a large corporation is stuck with a counterparty that can’t pay, it negotiates the best deal it can get. Maybe it can retrieve 40 cents for each dollar it was supposed to receive. The rest it has to write off.

But the bailout allowed Goldman, et al., to get every cent AIG owed them. This preserved shareholder value at, say, Goldman, while destroying AIG’s shareholders.

Of course, without the government’s help, AIG shareholders would have gone broke. As Goldman, Deutsche and other big banks. But with the government’s help, AIG shareholders still went broke. Goldman investors stumbled, but still have a stock worth something.

That’s the point of the lawsuit. The bailout was structured to save some companies at the expense of others, and the government shouldn’t be picking winners and losers that way.

But they did, with the banks’ shareholders getting a backdoor bailout while AIG shareholders got stuck.

The lesson here, I guess, is not to go into banking unless you have a sponsor at the NY Fed.

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