Former Treasury secretary says AIG rescue was meant to be punishment, help to pass TARP

MarketsAssociated Press

Former Treasury Secretary Henry Paulson says that the 2008 government bailout of American International Group Inc. was specifically designed to punish the insurance giant.

The $85 billion loan package extended to AIG gave the government control of 80 percent of its stock. Paulson says that AIG shareholders should have faced punishment for their troubled balance sheet as part of any rescue, unlike other major financial firms rescued during the worst economic downturn in roughly 80 years.

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Paulson's testimony in U.S. court Monday came as part of a lawsuit brought by former AIG chairman and CEO Maurice Greenberg, who says that the bailout violated the Constitution's Fifth Amendment by taking control of AIG without "just compensation" in return for the shares.