

The irony of this situation is not lost upon Hank Paulson as he arrives at court on Monday. (Andrew Harrer/Bloomberg)

Maurice "Hank" Greenberg, the 89-year-old former chairman of American International Group, wants nothing more his constitutional rights. Yes, he is suing the government, claiming that it had no authority to bail out his old company in the financial crisis, insisting that AIG didn't need to be rescued anyway, and demanding that taxpayers pay him and other shareholders about $40 billion. It's not about the money, though, he told Charlie Rose last year.

"We have a Constitution that says government can’t take property without compensation," Greenberg said.

Presumably, the federal officials who orchestrated the rescue -- including former Federal Reserve Chairman Ben Bernanke, former Treasury Secretaries Hank Paulson, and former New York Fed president Tim Geithner, all of whom will be called to testify at this week's trial -- would respond that Greenberg received more than just compensation for shares of AIG that had become essentially worthless.

That was the argument Paulson made on the stand on Monday. He also said, as he has previously, that AIG's shareholders had to be penalized to discourage other firms from making risky bets in the future.

"When companies fail, shareholders bear the losses," Paulson said. "It's just the way our system is supposed to work."

He was dismissed after just two hours of testimony, although he'd been scheduled for six. Geithner is set to testify Tuesday and Bernanke later this week.

Many lawyers are skeptical of Greenberg's case. But whatever the ruling, he has arguably already won an important victory by bringing the architects of the bailout to a courtroom to answer questions about their actions. Greenberg filed suit in 2011; his lawyers only deposed Bernanke earlier this year, after government lawyers couldn't get him off the hook.

Six years after the crisis, Bernanke, Paulson and Geithner will be forced to defend their strategy of bailing out major financial institutions -- a strategy that has caused deep resentment even though they said their goal was to save the economy. The men have made their case already, in memoirs and in Congressional testimony, but now, they must submit to a detailed cross examination under oath.

The case could mark the culmination of a long national debate about how federal authorities reacted during the crash.

Given the nation's uneven economic recovery, the three officials' decisions at the time remain controversial -- and not just among wealthy insurance magnates.

Greenberg was once worth more than $3 billion, according to Forbes. He was in charge of AIG until 2005, when the board became suspicious that he was using a holding company to enrich himself and other executives.

"He established a culture of greed and risk-taking," said James Cox, a law professor at Duke University. That culture "permeated" AIG, Cox said, and was likely the reason that the firm invested so heavily in the complex insurance products called credit-default swaps that helped to destabilize the financial system when the housing market collapsed.

Greenberg, who remained a major shareholder in the company, denies abusing his position at AIG. He told Rose that if he had been at the company in 2008, he could have found a way to save it.

In what was derisively called a "back-door bailout," most of the money that the government gave AIG wound up at major banks that had done business with the company, such as Goldman Sachs, Merrill Lynch and UBS, which lost nothing on the credit-default swaps they held.

A Treasury Department report from 2009 criticized the government for failing to use its "considerable leverage" and demanding those banks to take a loss as well, which could have made rescuing AIG cheaper for taxpayers.

Greenberg's complaint argues that the rescue of AIG, which wiped out shareholders, was premature. He says that foreign investors, including the Chinese and Singaporean governments, were ready to invest in AIG. They thought that the company was still a good bet. The trial might reveal more about how serious these offers were and whether the firm had a chance to save itself.

Paulson said on Monday that the Chinese did not understand how serious the crisis was at the time, and that they would have insisted on some kind of guarantee from the U.S. government as a condition of any deal.

Even if foreign investors could have been found who didn't insist on federal help, Greenberg would still have a difficult case to make. As Cox noted, it isn't the government's fault that AIG didn't insist on the best deal. Taxpayers aren't necessarily on the hook because the company's leadership negotiated poorly with the government.

Still, this case gives Greenberg a chance to argue that his company was healthier than the public was told, and a chance to put Paulson and the others on the stand.

"He can't spend in his remaining years whatever he would get," Cox said. "It's all about reputation, and the money is nothing."

David Boies, the acclaimed lawyer who represented Al Gore in Bush v. Gore and is now working for Greenberg, is likely to try to make an example of his remaining witnesses with relentless cross examination. Yet federal officials in the next financial crisis will probably be no more circumspect about bailing out failing firms, said Nicole Gelinas, a scholar at the Manhattan Institute.

"People going into finance and going into government have absorbed that what the government did in 2008 was the correct thing to do," said Gelinas, who worries that the resolution process laid out in the Dodd-Frank financial reform law won't prevent chaotic and potentially even more expensive rescues in the future.

Cox agreed. "They'll do the same thing," he said. "They'll squeeze the damn trigger."

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