Reuters reports that one of the most interesting things coming out of the trial that began Monday is that finally someone is asking whether the federal government’s rescue of American International Group was even legal.
This was the first stage in the birth of the toxic concept that any institution could be “Too Big Too Fail.”
In a case that explores the limits on U.S. government power in responding to major financial crises, the trial is expected to revisit in detail the New York Federal Reserve's September 2008 decision to extend a bailout package to AIG as the insurance giant was minutes from bankruptcy.
The AIG bailout, on the heels of the Lehman Brothers collapse in 2008, preceded the "too big to fail" auto and bank bailouts the federal government undertook during a U.S. financial crisis underpinned by faulty mortgage lending.
The major players in that drama will be back on the Washington stage during the six-week trial: Former Federal Reserve Chairman Ben Bernanke, and former Treasury Secretaries Timothy Geithner and Henry "Hank" Paulson.
A lawyer for the insurance giant's former chief executive, Maurice "Hank" Greenberg, was expected to argue that the government unlawfully sought to punish AIG shareholders with excessively harsh terms.
Greenberg's lawyers have said in court papers the bailout "offer" from the New York Fed to provide AIG an $85 billion loan in exchange for high interest rates and a nearly 80 percent stake in the company amounted to unconstitutional theft from AIG shareholders.