NEW YORK: Six years after the financial crisis brought Wall Street to its knees, a Washington trial starting Monday will force policy makers to defend the drastic measures they took to prevent a deeper collapse.
A lawsuit lodged by former American Insurance Group chief Hank Greenberg will revisit the monumental government decision of September 2008 to seize control of the world's largest insurance company.
Greenberg's case maintains that US officials effectively stole AIG from shareholders in exchange for $85 billion in emergency loans. He seeks more than $40 billion in damages.
Key witnesses expected to testify in the six-week trial include former Federal Reserve chairman Ben Bernanke and ex-New York Federal Reserve Bank President Timothy Geithner, who later became treasury secretary.
Both were instrumental in the government's action to take over the company, which as a privately owned insurer was not regulated by the Federal Reserve.
The suit was filed by Starr Investment Holdings, AIG's biggest shareholder at the time of the bailout.
Greenberg is chairman and chief executive of Starr, which still holds about 18.8 million shares of AIG, or 1.3 percent.
During the financial crisis, the US Treasury and Federal Reserve ultimately loaned AIG $182 billion, taking a 79.9 percent shareholding with the initial $85 billion infusion in September 2008.
Citing the powers of the Federal Reserve Act, the Fed justified rescuing a non-bank on the grounds that "a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance."
The bailout gave AIG the necessary liquidity to stay afloat, sparing the giant insurer a bankruptcy that could have devastated the global financial system. At the same time, shareholders like Starr saw their stakes plummet in value by the dilution from the government.
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