The federal government gets sued for saving AIG - The Washington PostFORMER FEDERAL Reserve Board chairman Ben S. Bernanke found himself facing tough questioning in a federal courtroom last week, and he seemed “none too pleased about it,” as the Wall Street Journal put it. Mr. Bernanke’s interrogator was a lawyer for Maurice R. “Hank” Greenberg, the former chief executive (and a major shareholder) of insurance giant AIG, who is suing the U.S. government on the grounds that its 2008 bailout of the firm violated his constitutional rights. Mr. Bernanke has said that the rescue of AIG, which ultimately involved $182 billion in government commitments, was a necessary evil that he and the Bush administration undertook only because AIG’s collapse would have imperiled the world economy. By his apparent demeanor in the courtroom, Mr. Bernanke communicated annoyance at Mr. Greenberg’s attempt to punish this good deed — and we don’t blame him.
The AIG bailout was not only especially onerous for the government — and U.S. taxpayers — but also especially galling. AIG got into trouble by recklessly extending its guarantee to securities backed by sketchy subprime mortgages. Amid the panic of September 2008, it appeared headed for a bankruptcy that might be even more epic than the collapse of Lehman Brothers. Unwilling to risk that, Mr. Bernanke, then-Treasury Secretary Henry M. Paulson and New York Federal Reserve president Timothy F. Geithner crafted a financial lifeline for the company, swallowing their contempt for its irresponsibility. In the process, AIG’s creditors also got bailed out, including many European banks whose approach to risk wasn’t much more admirable than AIG’s.