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Comment by smsm42 | Hacker News Reader

It's kind of funny that the government apparently (if AIG claims are true) did the same to them as what politicians long criticized the bankers for doing as "predatory lending". I.e. if you consider that using one's bad situation to trick him into a loan which terms are unduly onerous is despicable thing to do for a bank - shouldn't be the same thing despicable for the government? On the other hand, if it's OK for the government to do, they shouldn't really use this "predatory lending" term anymore - at least not in a legal context. In a generic rhetoric, you can say "charging this much for a loan really sucks, you're a giant douche if you do that" but legally if it's OK for the government shouldn't it be OK for others?

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The biggest problem with predatory lending is the salesmanship and opacity of terms that make the financial impact unclear to the person buying the loan.

In this case we're talking about extremely savvy investors who were given an offer that they accepted eyes wide open. If this was a bum deal, any anger should be directed at the directors/board rather than the government.

As I said in other comment, would you be willing to support this notion for any deal? E.g., if the offer is very clear and not opaque at all - say, you are in desperate need of a job, and some employer offers you a salary that is 10% lower than legal minimal wage and 20% lower that is common in your profession, and openly says this is because of your gender and race and he knows you gender and race are lazy and unproductive, but since he's low on money he's willing to hire you for low price - would you say such clear and open offer be fine? Current law considers it illegal and unfair, do you reject this concept and would you vote for a politician that would support repealing such laws and declare any voluntary contract which is clear to both sides to be legal? If you would, you would find yourself in very tiny minority in contemporary America. Most people think that some deals are unfair even if both sides agreed on it - and unfairness may stem from many things, difference in power one of them. Powers of AIG management and US government at that moment were obviously very different - so why it is inconceivable to consider that it may be that US government used his advantage to deal unfairly? We know lots of other cases where people in power used their powers to deal unfairly, why it couldn't happen in this particular case? It may or not may happened indeed - that's why you need a court to figure it out - but I don't see, in current legal system, how you can reject the notion that it can be possible in principle.

> 10% lower than legal minimal wage and 20% lower that is common in your profession, and openly says this is because of your gender and race

That completely breaks the comparison you're trying to draw. Paying someone less than minimum wage and paying them something different because of their gender or race are all explicitly illegal. A tough deal offered to AIG is none of those things, and it does not follow from "these specific things are illegal" that "any generalization of those things is therefore illegal". If the comparison weren't so speciously constructed, I'd also complain that comparing the behavior of the government towards a multi-billion dollar corporation to the behavior of lenders towards a poor person is pretty lame.

Legality aside, the actual advantage the US government had was that no one else wanted to loan AIG money. That's a pretty good reason to give them tough terms. The US would just be making a sweetheart deal with AIG otherwise. One way to think about it is that the most obvious alternative is for the US not to have bailed them out at all.

The question whether the government actions in this case were legal or not is up to the court for decide. But if you accept the premise that some voluntary contracts can be not OK despite their being voluntary, you can not object to AIG's claim that they were wronged by saying "but it was voluntary!". You know already being voluntary is not enough - either you have to abandon this notion or you have to abandon your objections to AIG.

>>>> Legality aside, the actual advantage the US government had was that no one else wanted to loan AIG money. That's a pretty good reason to give them tough terms.

Do you always accept this premise? Say, nobody would be willing to lend you money - because of recent bankruptcy. Would it be OK for some shady outfit to offer you a 30% a day loan, and have you agree that if you don't return it all they get to beat you up at their heart's content? If you're hungry enough you may voluntarily agree, would it make you OK? Would it make it OK if you were sick and nobody would agree to treat you without upfront payment, but one establishment would agree if you promise to give them 95% of all your future income - would it be fine then? Or is it fine only when done to other people, especially ones investing in an evil corporation?

>>>> The US would just be making a sweetheart deal with AIG otherwise.

There's a lot of way between unfair deal and sweetheart deal. Most deals fall into the spectrum between them.

Yes, the board of directors of AIG are exactly like financially illiterate people trying to get a mortgage to buy their own home.

I'd like to see them try and prove they were taken advantage of by referencing their own incompetence. "Your honor, the defence claims that we were sophisticated investors but look at what we did. Are these the acts of a sophisticated man who knows what he's doing?"

You are glossing over the fact that the current board of directors are not the same people who got the company into trouble in 2008. They are the ones who turned the company around. They also have the same mandate as the board of any other publicly traded company: maximize value for the shareholders.

  They also have the same mandate as the board of any other publicly traded company: maximize value for the shareholders.

This is wrong.

http://blogs.law.harvard.edu/corpgov/2012/06/26/the-sharehol...

Just because some professor says it is harmful doesn't mean boards don't have that as a priority.

And, the AIG CEO has publicly said his goal is to make his company as profitable as possible, and that may mean going to court.

>You are glossing over the fact that the current board of directors are not the same people who got the company into trouble in 2008.

That doesn't bear on whether they could (jokingly obv.) claim to be an unsophisticated victim of predatory lending, only the board at the time matters for that.

The board can run the company the way they want, barring gross misconduct or fraud, the shareholders had their say at the AGM.

>"if you consider that using one's bad situation to trick him into a loan which terms are unduly onerous is despicable thing to do for a bank"

I feel like these conversations are so one-sided: Why is it always this?

Yes, predatory lending happened. But you know what else happened? People fraudulently reported personal information (with little verification required, which was a government mandate) to get mortgages. People who knew they had no chance in hell to repay the mortgage, but thought they could "flip" the house in time, or that prices would never fall. I can't tell you how many stories I've read or listened to where people tell their tale of going into the bank, reporting their income way too high (yes, sometimes thanks to a pushy mortgage broker) and getting a massive mortgage. All with no job. This is fraud, but the banks don't worry too much, because worst case scenario they take back the property.

The papers you sign are your responsibility. That goes for both parties.

The government is not a money lender, it rescued AIG even forcibly one might say because of the doomsday risks it posed to the rest of the economy (they were underwriters on trillions of derivative contracts). The AIG bosses should be happy that they weren't tried in a court of law for issuing fraudulent CDS insurance. All said the circumstances regarding AIG were exceptional and the banking jargon doesn't apply here.

The government is a huge money lender, what you're talking about? The government lent tons of money to tons of companies, and will do it again whenever it would want to. As for if AIG bosses did something criminal or not, that's completely unrelated question to the question if the deal AIG as a company got was fair or not. Exceptional circumstances also have little to do with it - either the deal was fair, and then they don't matter, or it was not, and then circumstances are no excuse. Banking jargon has nothing to do with it either - there are plenty of examples in US law where unfair deals are considered illegal and one can be punished for doing such deals.

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