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AIG seeks ability to sue more banks over mortgage securities

Since the summer of 2011, the insurance giant American International Group has been battling Bank of America over claims that the bank packaged and sold it defective mortgages that dealt AIG billions of dollars in losses.

Now AIG wants to be able to sue other banks that sold it mortgage-backed securities that plunged in value during the financial crisis. It has not said which banks, but possibilities include Deutsche Bank, Goldman Sachs and JPMorgan Chase.

But to sue, AIG first must win a court fight with an entity controlled by the Federal Reserve Bank of New York, which the insurer says is blocking its efforts to pursue the banks that caused it financial harm.

The dispute illustrates the web of financial instruments that AIG and the federal government became tangled in as the insurer nearly collapsed in 2008 and required a vast taxpayer bailout. It also shows the complexity of apportioning blame, five years after the financial crisis, and making wrongdoers pay for their share of the harm.

According to a lawsuit filed Friday, AIG is seeking a declaration from a New York state judge that it has the right to pursue “billions of dollars of fraud and other tort claims that exist against numerous financial institutions,” even though Fed officials have said AIG gave up that right.

“If I were the general counsel of AIG, I would seek this kind of declaratory judgment,” said Henry T.C. Hu, a former regulator who is now a professor at the University of Texas School of Law. “I don’t know whether I’d win, but it’s certainly worth trying.”

—Mary Williams Walsh, The New York Times

Crop insurance may cost taxpayers $15.8 billion for 2012

WASHINGTON — The worst drought in 50 years could leave taxpayers with a record bill of nearly $16 billion in crop insurance costs because of poor yields. The staggering cost of the program has drawn renewed attention as the Obama administration and congressional Republicans wrangle over ways to cut the deficit. Last month, Treasury Secretary Timothy Geithner said that reducing farm subsidies was one way the administration could cut government spending. But Congress has resisted.

The Agriculture Department, which runs the program, said that the total losses from crops harvested last year would not be known for weeks, but that costs from the program were estimated to be $15.8 billion, up from $9.4 billion in 2011.

Separately, a record $11.4 billion in indemnities for crop losses has been paid out to farmers, and officials say that number could balloon to as much as $20 billion. In 2011, a then-record $10.8 billion was paid out in indemnities.

The crop insurance program has drawn criticism from a wide range of groups that say the costs need to be reduced and that the program mainly benefits insurance companies and large farmers. Farmers’ net income for 2012 is expected to be $114 billion, down 3 percent from 2011 but still the second highest in 30 years.

Thomas P. Zacharias, the president of National Crop Insurance Services, an industry trade group, defended the program, saying that the record crop losses last year showed the need for insurance. “This year, most farmers will be able to rebound from historic drought, thanks to crop insurance,” Zacharias said.

The federal crop insurance program dates to the Dust Bowl era of the 1930s, when Congress created the taxpayer-subsidized insurance to protect farmers against crop losses. Today, the government pays about 62 percent of the insurance premiums. The policies are sold by 15 private insurance companies that receive about $1.3 billion annually from the government. The government also backs the companies against losses. President Barack Obama has proposed cutting crop insurance subsidies and reducing the amount paid to insurance companies, saving $4 billion over 10 years.

—Ron Nixon, The New York Times