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Re: So what would happen if AIG was forcedinto bankrupsy (pre-planed)
From: David Farber <dave () farber net>
Date: Wed, 18 Mar 2009 08:10:49 -0400



Begin forwarded message:

From: Lars Poulsen <lars () beagle-ears com>
Date: March 17, 2009 9:19:04 PM EDT
To: dave () farber net
Subject: Re: [IP] So what would happen if AIG was forcedinto bankrupsy (pre-planed)

David Farber wrote:
Bankrupsy judges have been know to get contracts cancelled with employees
(ask the airlines) and to get monies back paid like AIG paid it.
Seems to me the USG would be in no worse shape nor would AIGs creditors.

Whatever the *reality* (we all know that AIG is toast), the game has
been to AVOID declaring AIG bankrupt. Rather, the goal has been to
run out the clock while many of its credit default swaps expire without
getting renewed. Rumor has it that this has been quite successful:
The $180B capital infusion has allowed $300B of CDS contracts to expire.

Certainly, a bankruptcy judge can cancel contracts; indeed the point
of bankruptcy is to put the world on notice that the subject company
(or person) has been recognized to be unable to fulfill its (his)
contractual obligations, and the judge is now in charge.

In some instances, the *threat* of suing for bankruptcy has convinced
creditors and contract partners that they would be better off voluntarily
backing off on their contractual rights and get *something* rather than
get nothing in a bankruptcy court, but in this case, AIG's management
and other beneficiaries of the bonuses know very well that the
government thinks that it cannot affort to take AIG to bankruptcy
court.

If AIG was declared bankrupt, and has insufficient assets to pay all
its obligations, the creditors are worse off, than if they have some
hope that thay may get paid. At present, they can at least pretend that
they think they will get paid (and some of them will - indeed some of them
have already been paid).

Ann Marie Plubell <amplubell () yahoo com> wrote:
> “Outside counsel has advised that these are legal, binding obligations > of AIG, and there are serious legal, as well as business, consequences
> for not paying.” (Source Liddy letter to Geitner, March 14, 2009)
> Could it be a firm as excellent as Weil Gotshal rendered this advice?

If the lawyers were retained by AIG's executive team, and they think of
the government as an outside party that AIG must maneuver to defend
itself against (and the law firm's web page implies that this is the case),
then the government should not rely on their opinion but ask its own
lawyers. I think that is what is happening now, at president Obama's
insistence.

I think an argument can be made that when congress passed a law imposing
caps on executive compensation in companies that henceforward received
"extraordinary assistance", and AIG subsequently received such assistance,
these compensation agreements became nullified to the extent that they
would lead to compensation above the cap.

/ Lars Poulsen




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