AIG, the Wall Street investment firm considered to be the trigger of the 2008 US financial meltdown, decided on Wednesday not to join stockholders in a lawsuit against the federal government.
The board of directors at AIG faced a firestorm of criticism Monday after it was thought that the bailed-out bankers would dare to complain about not getting a good enough deal from the taxpayer-funded bailouts in 2009. The company faced bankruptcy after gambling with billions of dollars in mortgage securities fraud.
“AIG took a $182 billion bailout during the financial crisis and the idea that it would join a lawsuit arguing the terms of taxpayers’ largesse were unfair sent steam coming out of the ears of many lawmakers and government officials,” according to Politico.
AIG was among several Wall Street firms that packaged risky mortgages into bundles and sold them to investors as quality investments. When the loans went bad, the companies that sold them started foreclosing on millions of US homeowners.
The epidemic of foreclosures caused the US housing market to collapse, and triggered the worst recession since the Great Depression.
Homeowners that managed to survive the real estate market collapse found themselves owing more on their homes than they were worth. Facing long-term negative equity, thousands of homeowners choose strategic default and simply walked away from their homes.
Since taking the largest amount of bailout money of any of the mortgage debacle culprits, AIG has managed to turn a profit, despite the continuing struggles of the US economy.
The $25 billion lawsuit against the federal government was put together by Starr International on behalf of AIG stockholders, who claim that the $182 billion taxpayer bailout money was not fair to stockholders.
Without TARP funds, AIG would likely have gone bankrupt, and stockholders would have gotten very little or nothing. Therefore, their attempt to sue the federal government for even more taxpayer money has left many struggling to find justice in the mere suggestion of bailout unfairness.
Millions of Americans have paid for the 2008 Wall Street mortgage securities fraud in more ways than just funding bailout money. The banks that took TARP money have taken a sharp turn away from making consumer loans, especially for mortgages.
The more stringent qualifications have made it harder for people to get loans and therefore revive the housing market. This has led to real estate buying opportunities for wealthy cash buyers, who were partly to blame for creating inflated home prices by flipping property for profit in relatively short periods of time.
The areas of the US that experienced the most growth during the boom years preceding the collapse have also been the hardest hit since. While some section of the country have seen a slow but steady recovery, states like Arizona and Florida are still experiencing higher than average foreclosure rates.
Whether or not AIG stockholders will be among the beneficiaries of bank bailout litigation remains to be seen. However, AIG stockholder complaints of unfairness in TARP fund distribution seems like a hard case to sell.