Timothy Geithner, one of the highest-ranking government officials during the financial crisis, testified in federal court yesterday that he thought a failure of American International Group Inc. would have had catastrophic consequences, the Wall Street Journal reported today. He conceded that he once said the government’s rescue “wiped out” the company’s shareholders, in a nod to the harshness of the terms. Geithner, president of the Federal Reserve Bank of New York when AIG nearly collapsed, parried with trial lawyer David Boies yesterday in the U.S. Court of Federal Claims as part of a lawsuit brought by AIG’s former longtime chief executive, Maurice R. “Hank” Greenberg. The suit alleges that the government cheated shareholders of $40 billion when it took a 79.9 percent equity stake without justly compensating them. The class-action suit was filed in 2011 by Starr International Co., an investment and charitable firm run by Greenberg that was AIG’s largest shareholder in 2008. While no smoking guns have emerged, Boies has been pulling together an array of material seeking to prove Starr’s contention that senior government officials considered the treatment of AIG shareholders to be extremely punitive, even as they believed that AIG must accept the terms because the damage from an AIG bankruptcy would be so widespread. A key part of the lawsuit is that the government forced the rescue package’s onerous terms on AIG, rather than AIG voluntarily accepting the deal, as the government maintains.
