Judge Wouldn't Mind Reminiscing About The AIG Bailout With Ben Bernanke

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A question that I don't generally spend a lot of time thinking about is "what if Hank Greenberg wins his $25 billion lawsuit against the government claiming that they unfairly took AIG away from him?," because come on. Hank Greenberg winning his $25 billion lawsuit against the government always struck me as being about as likely as AIG joining that lawsuit: there'll be a lot of expensive process, everyone involved will make a big show of treating Greenberg fairly, everyone not involved will get furiously angry at the cheek of it, and at the end the thing that everyone knows will happen will happen.

But the judge in the case just ordered that Ben Bernanke has to answer questions in the case, which I feel like it might change the handicapping a bit? This doesn't seem like the sort of lawsuit where Greenberg can just make himself annoying enough to get a settlement - it's hard to see the government kicking him, say, $1 billion for his troubles - but still this is a marginal win for him. Here's why Greenberg needs to sit down with Ben:

Plaintiff emphasizes the following reasons for taking Mr. Bernanke’s deposition: (1) he was the key decision-maker in the Government’s initiation of the bailout of AIG; (2) he has knowledge of relevant aspects of this case, including the Government’s decision to offer AIG a loan, whether AIG was financially solvent, whether bankruptcy was a viable option for AIG, whether the Government’s actions toward AIG were punitive, and whether the Government took control of AIG; (3) he has provided testimony before Congress regarding AIG at least five times; (4) he has given speeches at various organizations and has performed a lecture series available on the Federal Reserve website addressing the AIG bailout; and (5) he has written a book that in part discusses the AIG bailout.

I feel like the book and speeches and testimony cut the other way, no? Like: if you want to know what Bernanke thinks about the AIG bailout, you can read his lectures and testimony and book about AIG,1 rather than sitting him down and asking him about them, no? I suppose there's an argument that just asking someone for their views is always easier than inferring them from their books and stuff, but the counterargument is (1) Bernanke is by all accounts busy and (2) asking central bankers what they think is a singularly bad way of finding out what they think. "I will avoid answering your question for an extended period."

So anyway Hank Greenberg's lawyers will get to ask him amusing questions like "was AIG financially solvent?"2 The DealBook story concludes with "Judge Wheeler plans to attend the deposition personally," and you bet he does. I would too, if I were him, or if I were invited.

Other than the weird solvency stuff, Greenberg seems mainly interested in asking Bernanke about his intentions in taking over AIG. The theory of his case is that the bailout wasn't an arm's-length business deal offered by a businesslike Fed to an AIG board that, though in an unpleasant situation, nonetheless chose freely from a list of bad options. Rather it was a deal forced upon AIG to punish its shareholders, make an example of them, and rescue more favored bits of the financial system at the expense of AIG's shareholders - all a bit outside of what the law actually allows. Those are questions that you might reasonably ask the AIG board. They're a little strange to ask of Bernanke, though. I would have thought that what mattered was not Bernanke's feelings about AIG, but rather the board's freedom to take or not take another deal. And, as the New York court that dismissed Greenberg's other, similar, case pointed out, it's a bit rough to second-guess the subjective intentions of Fed officials who were responsible for saving the global financial system, five years after the fact.

The important thing for Greenberg is not so much what Bernanke says, but the fact that the judge in the case thinks his intentions might matter - in fact says "the Court cannot fathom having to decide this multi-billion dollar claim without the testimony of such a key government decision-maker." Greenberg actually has some good arguments that the bailout of AIG was something other than an arm's-length business deal that both sides agreed was harsh but fair. (Like: a lot of AIG bailout money really did go to AIG's derivatives counterparties! Or: a lot of politicians really did say "we hosed those AIG shareholders because they deserved it.") It's hard for me to care about those arguments: I stop at, (1) did the Fed offer AIG an option, (2) did AIG have any other options, (3) well okay then. The likelihood that the Fed's option was unpleasant, and intended by the Fed to be unpleasant for not strictly commercial reasons, doesn't trouble me that much.

It troubles the hell out of Greenberg, but he seems to be in the minority on that. Now it seems to trouble the judge though, which is encouraging news for Greenberg.

Judge Says Bernanke Should Testify in A.I.G. Case [DealBook]

1.In fact Greenberg's arguments have very cleverly used just those speeches, books, etc., to make the argument that the AIG bailout was about punishing AIG rather than a fair financial transaction.

2.I mean, it's a boring question, but it's sort of amusing to ask him. Like "oh, yeah, I built a little Excel model, valued all of their assets, and determined they were insolvent." C'mon.