Sue The AIG Board, And Every Member On It (Joe Rothstein's Commentary)

Here's a simple shortcut for exacting justice from AIG: sue the board of the directors.

Sue them for failure to meet their legal obligations to protect shareholder interests.

Sue them for failing to responsibly monitor management's self-destructive activities.

Sue them for not heeding warnings from regulators, accountants or attorneys.

Sue them for being asleep at the switch while the big train that used to be AIG hurtled off the tracks.

When people agree to serve on a publicly traded board they sign up for a lot of responsibility. The presumption is that a board member of AIG or any major bank or corporation has the background, the interest, the time and the sense of purpose to be a worthy steward of the public's investment. For that job, most get rewarded with megadollars and glitzy perks.

But the law is crystal clear about liabilities for board members who enjoy the benefits without doing the work. They're subject to a myriad of civil and criminal liabilities. Back in the 1980s and 1990s, federal and state government agencies brought suits against hundreds of people who served on boards of failed savings and loans and banks. The states, the FDIC, the Department of Justice, the SEC and others went after directors aggressively. Why not? The S & L crisis of those years caused more than 2000 banks and S & Ls to close and cost U.S. taxpayers about $150 billion.

$150 billion. That was for 2000+ lending institutions. Now taxpayers are on the hook for that much and more just for AIG.

Amid all the justified outrage at broker bonuses, let's not overlook the people at the top---AIG's former management and board. If there were binding contracts to pay the brokers, those contracts had to have been signed by top management and approved by the board. On the face of it, signing contracts for bonuses that cost the company $160 million----bonuses not related to performance---was grossly irresponsible. As the lawyers like to say, that sure sounds actionable.

It's imperative that the government use its full power and authority to extract money, reputation and, where warranted, jail time from those who have had a role in bringing down the world's economy. The lesson this time needs to be more indelible than the ones taught after the S & L crisis and the Enron era scandals.

Savings and Loans, for much of the nation's history, were much like those in It's A Wonderful Life. They loaned money mostly for homes in their neighborhoods and were restricted to conservative banking practices. In 1980, riding the deregulation wave, the thrifts got the banking laws changed. They went on a spree of outbidding one another for high interest deposits and making high risk bets to pay for them. Some executives and board members even crossed the line into criminal territory. By the time the regulators finally caught up with them, more than 1000 S & Ls were broke. It wasn't until the mid-1990s that the government could close the books on that expensive fiasco.

The monied community apparently didn't learn much of a lesson from the savings and loan crisis. Only a few years later, they were back at it again with a vengeance. This time, the cost is in the trillions, not the billions. And this time the hardship isn't confined to the U.S. It's a threat to the entire world.

If there's such a thing as accountability for bad behavior, it's time to exact it from those who either pushed all the wrong buttons---or sat idly by while others did---and blew up the financial system.

One good result from the savings and loan crisis was that the laws governing how public companies and banks should be managed----and who's responsible if they're not managed in the interests of the shareholders----were tightened and made more explicit. Government regulators have plenty of weapons in their arsenal for declaring this pay-back time.

So, sure, let's go after the people with bonuses. But let's really go after those who agreed to those contracts----and who did so much worse by intention or inattention. Their sins are many of orders of magnitude greater. The costs they've left us with are so much higher and the pain they are inflicting goes so much deeper.

This is no time to just say, “oh, well.” It's time for hefty fines, humiliation and, where warranted, handcuffs. The punishment has to be so severe that there will be no “next time.”

(Joe Rothstein can be contacted at joe@einnews.com)