Former Treasury Secretary Henry Paulson’s testimony that American International received harsher terms than other institutions getting government bailouts in the financial crisis sets the stage for Tuesday’s examination of a second architect of the rescue.
Bloomberg News reports that Paulson, testifying in a trial over claims by Maurice 'Hank' Greenberg’s Starr International Co. that the government illegally took equity in AIG, said Monday that regulators wanted to send a message to markets that government help would cost them.
Timothy Geithner, the head of the Federal Reserve Bank of New York in 2008, was cited in earlier testimony as being responsible for setting what a Starr lawyer called 'an extortion rate' of 14 percent.
'When companies fail, shareholders bear the losses,' Paulson testified under questioning from Joshua Gardner, a Justice Department lawyer. 'It’s just the way our system is supposed to work.'
Greenberg, who built AIG into the world’s biggest insurer, claims the government trampled shareholders’ rights. The government didn’t have the legal authority to take an 80 percent equity stake in consideration of an $85 billion loan to AIG, Starr alleges.
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