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Greenberg Sues U.S. Over A.I.G. Takeover

The two lawsuits were filed on behalf of Starr International, Mr. Greenberg’s company and a large A.I.G. shareholder. The suit against the Treasury was filed in the United States Court of Federal Claims in Washington. The case against the New York Fed, a private corporation, was brought in Federal District Court for the Southern District of New York.

“What these lawsuits say is that in our country, not even the government is above the law,” said David Boies, the lawyer at Boies, Schiller Flexner, who represents Mr. Greenberg and Starr. “When the government takes action, although it has enormous power, there are legal limits to what they can do. One of those limits is that they cannot take private property even for a good purpose if they do it in violation of legal protection or don’t give just compensation.”

The lawsuit against the Treasury contends that the takeover of A.I.G. discriminated against the company and its shareholders by charging onerous interest rates on loans extended by the government — 14.5 percent initially — and by taking an 80 percent interest in the company over the objections of shareholders.

The terms of the government’s assistance to Citigroup, which was aided about the same time, provide a contrast, the lawsuit contends. Indicating the punitive nature of the A.I.G. rescue, the suit pointed out that Citigroup received loans at a fraction of the interest rate charged to A.I.G. and that the government took on only a modest stake in the bank.

“The government is not empowered to trample shareholder and property rights even in the midst of a financial emergency,” the lawsuit said.

At the time of the A.I.G. bailout, Henry M. Paulson Jr. was head of the Treasury and Timothy F. Geithner was president of the New York Fed. Mr. Geithner is now Treasury secretary.

A spokeswoman for the Treasury provided a statement from Tim Massad, assistant secretary for financial stability. “It is important to remember that the government provided assistance to A.I.G. — and stopped it from collapsing — in order to prevent a meltdown of the entire global financial system,” he said. “Our actions were necessary, legal and constitutional. We are reviewing the lawsuit and expect to defend our actions vigorously.”

Jack Gutt, a spokesman for the New York Fed, called the suit meritless and said that A.I.G.’s alternative to the government bailout was bankruptcy and a worthless stock. “The Federal Reserve’s actions with regard to A.I.G. helped to restore financial stability in the United States during a period of intense volatility and vulnerability in the U.S. economy,” Mr. Gutt said.

Together, the Starr lawsuits seek at least $25 billion in damages, which is the value of A.I.G. shares held by Starr before the government bailed out the insurer. But as they progress, Starr International’s lawyers will request information about the decisions to rescue A.I.G., including documents and e-mail traffic between the Treasury, the New York Fed, A.I.G. and its trading partners.

The court actions may fill in some of the details surrounding the takeover that remain shrouded in secrecy, especially the decision by the Fed to unwind the credit insurance the company had written on souring mortgage securities and pay A.I.G.’s trading partners in full. Mr. Greenberg declined to comment.

A.I.G.’s credit insurance positions were closed out in November 2008. It later emerged that New York Fed officials chose to pay the insurer’s trading partners 100 cents on the dollar, even though some institutions were willing to accept a discount. The New York Fed also tried to keep A.I.G. from identifying the institutions that received the payouts, even though the insurer argued that such disclosures were called for under securities laws.

Critics have called the Fed’s decision a backdoor bailout for prosperous institutions that had dealings with A.I.G. Only later were these institutions identified; they included Goldman Sachs, the French bank Société Générale and Deutsche Bank.

The lawsuit against the New York Fed also says that the Fed breached its duty to A.I.G. shareholders by requiring that the company release these trading partners from any possible legal actions related to the mortgage securities it had agreed to insure.

A report on the A.I.G. takeover published last month by the Government Accountability Office found inconsistencies and contradictions in New York Fed officials’ explanations for why it paid A.I.G.’s trading partners in full. The report also noted that the New York Fed’s decision to make these institutions whole on the credit insurance written by A.I.G. disregarded the expectations of Fed officials in Washington.

Article source: http://feeds.nytimes.com/click.phdo?i=ed0b7da3ceca96ebcd6ef9cd80592a86

Members of Merkel’s Party Emphasize Opposition to Euro Bonds

FRANKFURT — Chancellor Angela Merkel of Germany has faced harsh criticism for being too passive in the face of Europe’s debt crisis. But on Monday, members of her own party and the Bundesbank made it clear just how hard it would be for her to pursue any solution that asked German taxpayers to sacrifice for the sake of European unity.

With many economists calling for Europe to expand the euro zone’s bailout fund or start issuing bonds guaranteed by all 17 of the countries that share governance of the common currency, German politicians at home struck back.

“Euro bonds would push up German interest rates,” Philipp Missfelder, the foreign affairs spokesman for Mrs. Merkel’s Christian Democratic Union, said Monday after a meeting of the center-right party’s board. “The cost of servicing the debt would be enormous.”

Meanwhile, the Bundesbank, representing the views of Germany’s monetary authorities within the European Central Bank, complained Monday that liabilities acquired by weaker countries were being offloaded onto the stronger ones.

“A major step is being taken toward common assumption of risks from weak national finances and economic missteps,” the Bundesbank said in its monthly bulletin. “This weakens the foundation of fiscal responsibility and self-discipline.”

The president of the Bundesbank, Jens Weidmann, is Mrs. Merkel’s former economic adviser.

Germany is the euro area’s largest and richest country, and no solution to the Continent’s debt crisis can succeed without German political support and German money.

Germany “would have enormous power if it took the initiative,” said Daniel Gros, director of the Center for European Policy Studies in Brussels.

“Now would be a time when they could do something,” he said of Mrs. Merkel and other German leaders. But “I’m not holding my breath.”

Many analysts complain that while Mrs. Merkel and other leaders, like Wolfgang Schäuble, the German finance minister, have made broad statements about cutting debt and promoting closer economic cooperation in Europe, they have offered few specifics and no timetable.

During a morning-long meeting of the party’s board in Berlin, the first since the summer recess, Mrs. Merkel told party leaders that she would not support the issuance of common European securities. Mrs. Merkel was repeating the position she voiced Sunday in an interview with ZDF television.

Advocates say euro bonds would allow members of the euro zone to pool their financial strength and hold down borrowing costs for weaker countries like Greece or Spain.

But even the most outspoken advocates acknowledge that even if German leaders agreed, it would still be unlikely that euro bonds could be issued soon enough to help much in the current crisis. Common debt would have to be accompanied by tougher rules on fiscal prudence, which would take months if not years to negotiate.

“I believe that is where we are headed, but it is not going to happen overnight,” said Laurent Bilke, head of European interest rate strategy at Nomura in London. “That is why the market is in a bad mood. There is no obvious quick fix that you can think of.”

Leading stock indexes in Europe and the United States rose Monday after brutal losses last week that were caused in part by investors’ doubts that European leaders were capable of developing an adequate solution to the debt crisis. That is a reason few analysts expect that the stock market turmoil is over.

In the absence of a more potent political solution, the European Central Bank has steadily increased the scope of its activities, most recently intervening in bond markets to prevent borrowing costs for Spain and Italy from reaching dangerous levels.

The central bank disclosed Monday that it spent 14.3 billion euros ($20.5 billion) buying government bonds on open markets last week, down from 22 billion euros the week before. The central bank does not disclose which bonds it purchases, but Mr. Bilke said the bank appeared to be buying 10-year Italian and Spanish bonds with the aim of holding their borrowing costs below 5 percent. If yields rise back to 6 percent or more for any extended period of time, it would most likely prove too expensive for the countries to bear.

Article source: http://feeds.nytimes.com/click.phdo?i=9daec2ab6a8b1f6ea9730809895c48ce

Greenberg Sues U.S. Over A.I.G. Takeover

Members of Merkel’s Party Emphasize Opposition to Euro Bonds

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