Word swept across Washington from Capitol Hill to K Street and the administration — and the response wasn’t positive

“AIG should thank American taxpayers for their help, not bite the hand that fed them for helping them out in a crisis,” Sen. Elizabeth Warren (D-Mass.) said in a statement. “Taxpayers across this country saved AIG from ruin, and it would be outrageous for this company to turn around and sue the federal government because they think the deal wasn’t generous enough. Even today, the government provides an ongoing, stealth bailout, propping up AIG with special tax breaks — tax breaks that Congress should stop.”

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Warren served on a congressional task force that helped provide oversight of the $700 billion Wall Street bailout law.

Rep. Elijah Cummings (D-Md.), ranking member on the House oversight committee, agreed.

“[The] idea that AIG might sue the govt is an unbelievable insult to our nation’s taxpayers, who cleaned up the mess this firm created,” Cummings said, according to a tweet by @OversightDems.

“It highlights the worst about what people think of the financial services industry,” said one senior Democratic House aide. “It undermines any sliver of credibility they may have had.”

The aide said if AIG pursues the litigation he would expect hearings on Capitol Hill.

The company’s board of directors is set to hear arguments by the government and Starr International, once one of the largest investors in AIG that is led by former AIG CEO Hank Greenberg, according to The Wall Street Journal.

Dennis Kelleher, chief executive of the financial reform group Better Markets, called the notion of AIG suing taxpayers over the terms its own bailout absurd, but he believes there may be an unintended and beneficial impact of pulling back the curtain on where the bailout money went, including to AIG’s Wall Street counterparties. The idea that the AIG rescue was a “backdoor bailout” for Wall Street has long been a rallying cry for progressive groups.

“The idea of AIG, which got this sweetheart bailout deal with no strings attached, forcing Treasury and the Fed to parade into a board meeting and explain the terms of that deal is incredible,” Kelleher said. “But a lawsuit that actually explains exactly what went on with this mess might be a great public service.”

Scott Harrington, a professor at Wharton School of Business, said that the company actually benefited from the government bailout beyond just the financial investment.

“AIG was able to keep a lot of its commercial property casualty business especially because of government bailout. Those clients would have moved to other major insurers,” Harrington said, leaving a smaller business portfolio if the company had to go into bankruptcy. “The fact that AIG was backed up by the government allowed them to retain business that they probably should have lost given what occurred.”

This article first appeared on POLITICO Pro at 5:01 p.m. on January 8, 2013.