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by James Corbett
TheInternationalForecaster.com
June 20, 2015

So what do you get when the scandal-soaked former chairman of an intelligence-connected insurance agency sues the Federal Reserve? If you guessed “absolutely nothing” then BING BING BING! We have a winner!

First, the factoid bullet point nutshell: In the wake of the Fed’s $182 billion bailout of American International Group in 2008, AIG’s largest shareholder Maurice Greenberg argued the government violated the US Constitution (and the Fed charter) by assuming 80% of the insurer’s stock in the company, thus illegally seizing his property. That argument came to court last fall and a ruling was issued earlier this week.

Next, the more detailed background. In September 2008 the Lehman Bros. collapse threatened to destabilize hundreds of billions of dollars of collateralized debt obligations (CDOs) built on toxic subprime loans that had been packaged as AAA securities. Lehman’s demise also undermines the credit default swaps that insured banks against the risk of those loans. One of the first major financial institutions on the firing line after that collapse was AIG, the fourth largest insurance company in the world by market cap and a company that boasts servicing 99.6% of Fortune 500 member companies. (AIG was #10 on that list before the meltdown but now has to settle for #46.) When Lehman cratered, AIG was holding the bag on $57.8 billion of subprime CDOs, the majority of which were downgraded or in default. Following the Fitch downgrade of AIG’s credit rating (which was mimicked by S&P and Moody’s), the company’s plummeting stock price and widening debt yields left it essentially bankrupt, unable to meet daily liquidity demands to operate its business.

In the midst of that (perfectly predictable (and predicted)) crisis, the Federal Reserve and the US Treasury swooped in as the “Saviors of the Universe” to save the day with some “Bold Action,” including loans, stock purchases, Special Purpose Vehicles and investments amounting to just over $182 billion of bailout aid. So far, so wonderful, right? Just another example of the governmental heroes of the world sparing us from yet another disaster by, as Bush so memorably put it, “abandon[ing] free market principles to save the free market.” And who could argue with the fact that the financial world is still functioning tickety-boo, AIG is back on its feet, the bailout has since been repaid, and everyone is happier?

Well, except for Greenberg, that is. With a 12 percent stake in AIG, Greenberg’s Starr International was its largest single shareholder at the time. When the government bailout mandated that the government now own 80 percent of AIG’s stock, Greenberg complained that the government had essentially confiscated the private property of Starr (and the other shareholders). Hence the lawsuit.

But wait just one second. Who is AIG, anyway? Should we be glad that it is back on its feet, after all? Should we care about Greenberg and this property seizure? What was the ruling on the court case and how will it change the Fed or Treasury’s operations in the future? To answer those questions, we’re going to have to get up to speed on AIG itself and the man behind the lawsuit, Maurice “Hammerin’ Hank” Greenberg.

C.V. Starr in China

You might think that AIG is just an ordinary insurance company. A boring, humdrum, faceless corporation full of pencil-pushing number-crunchers. But you’d be wrong. As I outlined in a Corbett Report Podcast episode on AIG, the real history of the American International Group is much more bizarre than you’d imagine. It starts in China, where Cornelius Vander Starr founded an insurance company in 1919. His prime placement as a businessman with connections all over the world and with access to sensitive insurance information came in handy during World War II, when he was forced back to New York after the Japanese invasion of China. Once stateside, Starr teamed up with “Wild Bill” Donovan, head of the Office of Strategic Services (OSS), to create an elite cadre of insurance agent spies who used their access to sensitive insurance information across enemy lines to feed info back to the Allies. If the acronym “OSS” rings a bell, that’s because it was the forerunner of the CIA. Starr used his Chinese networks to operate a covert network of informants in pre-Communist China for the OSS.

Greenberg entered the picture in the 1960s. A lawyer by training who served in WWII and Korea, Greenberg became a rising star in the insurance industry as the youngest-ever vice president of Continental Casualty, a firm in Manhattan. Starr poached him in the 1960s, and in 1968, appointed Greenberg as his successor. Focusing on AIG’s faltering American operations, Greenberg built the company into the behemoth that it is today through all the types of wheelings, dealings, drug running, money laundering, bribery and treachery you would expect.

While Greenberg’s exploits and the empire he created could fill a book in itself (and they do), a bullet point summary would have to include:

—Works with the CIA to underwrite Agency facilities and spy on China on business trips in the 1980s, writes an oft-cited report on “Making Intelligence Smarter: The Future of U.S. Intelligence” for the CFR (of which he is Vice Chairman and Director), and is offered to become Deputy CIA Director under Reagan (which he declines).

—Participates in the Arkansas Development Finance Agency money-laundering scandal that implicates Clinton and Bush in drug running through Mena, Arkansas, in the 1980s

—Is involved in the Coral Re scandal that implicates the wife of the co-founder of the Medellin Cartel, who is also described as AIG’s San Francisco legal Staff Counsel (despite not being an attorney)

—Is blamed for the multi-billion dollar accounting fraud scandal, which eventually forces him off the board of AIG in 2005 (but still retains control of primary shareholder Starr International)

—Is entangled in the entire AIG / Kroll / 9/11 Black 9/11 money trail that includes Marsh & McLennan, headed at the time by Greenberg’s son (as ably documented by Richard Grove)

But this all leads to the big “showdown” that we are asked to believe just took place between Greenberg—valiant defender of shareholders’ rights against unconstitutional power grabs—and the Federal Reserve. One interesting piece of the puzzle conveniently missing from most MSM coverage of this court case, however, is that Greenberg was the former chairman and director of the Federal Reserve Bank of New York, the position from which Wall Street essentially controls the Federal banking system in the US.

So what are we to believe here? Is this Bilderberg/Trilateral/CFR member and CIA insider really waging a war against the Fed? Was he really “swindled” out of a portion of his empire by a tough-love government bailout program? Is he a wronged man looking for revenge?

Hardly. But it does make the perfect narrative for the same type of media that took the core message of the serious people at Occupy (not the Soros change agents) of “the people vs. the banking establishment” and turned it into the nice “We Are the 99% Catchphrase.” It feeds well into that phony baloney left/right game where we can pretend that there is nothing more nefarious here than a crotchety old billionaire fighting over his spare change. Look at the way The New Yorker covered the trial as an absurdist comedy, for example, or Jon “Stewart” Leibowitz’ faux outrage over the way Greenberg is fighting “the people of the United States” as represented by the Fed. (Extra points if you know who “Stewart”‘s brother is.)

In reality, there is something else going on here entirely. The way I see it, what actually took place with Greenberg’s ouster from AIG and the Fed bailout shenanigans falls into one of two possibilities. Either Greenberg was using his buddies at the Fed to false flag his way back into control of AIG via the bailout, as Richard Grove suggested in the midst of the events, or we were witnessing just a piece of the consolidation of the banking mafia that was part of the Lehman fallout.

My money is on the latter, as there is good historical precedent for the idea. J.P. Morgan used the Panic of 1907 (which he likely created) to rub out his biggest competition (including one of the largest banks in the country at the time) and pave the way for the creation of the Fed cartel. The AIG collapse also benefited the usual suspects and helped to cover their assets. One guess who set AIG up for a fall and then became the primary beneficiary of the bailout. (Hint: It’s a venerable New York banking institution that is run by a delusional psychopath. Oh, I guess that doesn’t narrow it down. OK, it’s Goldman Sachs.)

But whatever bankster shakedown may or may not have been happening behind the scenes with the AIG fiasco, there is one very important thing to remember with this trial. Now repeat with me, folks: “The real action is in the reaction.”

So, now that we’re ready to go back to the beginning, what was the verdict? Can you guess? Well, in his ruling Justice Thomas C. Wheeler writes:

“Upon a full consideration of the record and the arguments of counsel, the Court finds that FRBNY’s taking of 79.9 percent equity ownership and voting control of AIG constituted an illegal exaction under the Fifth Amendment. The Board of Governors and the Federal Reserve Banks possessed the authority in a time of crisis to make emergency loans to distressed entities such as AIG, but they did not have the legal right to become the owner of AIG. In the Federal Reserve’s history of making hundreds of emergency loans to commercial entities, the loan to AIG represents the only instance in which the Federal Reserve has demanded equity ownership and voting control. There is no law permitting the Federal Reserve to take over a company and run its business in the commercial world as consideration for a loan.”

Pretty straightforward, right? Whatever else may be said about Greenberg and AIG, at least the court recognizes that the Fed clearly overstepped its bounds in actually taking over and running a business in return for “emergency loans.” At last, some sanity!

So what is the penalty for this crime? Bupkis. Nada. Zilch. Zero. Nothing. Or, in court speak: “Based upon the foregoing, the Court concludes that the Credit Agreement Shareholder Class shall prevail on liability due to the Government’s illegal exaction, but shall recover zero damages.”

That’s it. The Fed came in and gave AIG an emergency loan it (literally) couldn’t refuse, took it over and began running the company completely illegally and in violation of the Constitution. And the court decided that for that sin, the Fed will pay absolutely nothing and suffer absolutely no consequences. In other words, the ultimate precedent from this ruling is that in a time of emergency, the Fed can do absolutely anything it likes, including violating the Constitution, and absolutely nothing will be done about it.

And there it is, folks: Justice! What, you’re going to suggest that Greenberg was playing his role in setting a very very very atrociously bad legal precedent that will likely (definitely) be used in the future to ensure government takeover of essential industries during economic crisis? Shut up, conspiracy theorist!