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On Monday, the federal government will be on trial in Washington. It’s being sued over the government bailout of the insurance giant American International Group, or AIG.

In the fall of 2008, the government made an offer to AIG. In essence: We’ll loan you $85 billion. In return, we get a nearly 80 percent stake in AIG.

The suit is being spearheaded by a former CEO of the company, Hank Greenberg, who now heads Starr International Co. He says the government violated the Fifth Amendment to the U.S. Constitution, which says the government can’t seize private property without just compensation.  

Hester Peirce is a senior research fellow at George Mason University’s Mercatus Center. She’s not unsympathetic to Greenberg. But she thinks he’ll lose.

“Arguing that you were entitled to government assistance during a crisis is a pretty weak argument,” she says.

The government says AIG’s board approved the bailout, and the company couldn’t dictate the terms of its rescue. If the government wins, the case could set some loose ground rules for future bailouts of financial institutions.

“The institutions do have to agree to government terms if they want the assistance,” says Marcus Stanley, policy director for Americans for Financial Reform.

And, he says, they can’t go back and object to the terms, long after the bailout.

 

 

 

 

 

 

 

 

 

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