The goal was not merely to save the troubled company, but to quell worry of a relentless domino effect in the intertwined world of finance, where the failure of one firm results in losses at others.
But the rescue left a big question in its wake: Isn't there a better way?
AIG's bailout was controversial not just because it was a big handout from the Fed and later from taxpayers. It also allowed large banks to avoid any losses on risky investments made with AIG. Much of the bailout money simply passed through AIG to those banks, paying them in full on investment contracts known as "credit default swaps."
Mr. Greenberg alleges another problem with the bailout as well. His lawsuit via Starr International argues that the AIG rescue represented an illegal taking of private property without just compensation. Greenberg isn't arguing that AIG needed no help. But the lawsuit, at a minimum, underscores that setting the terms of a bailout can be an imprecise and controversial art.
The Starr lawsuit against the US government and the Federal Reserve Bank of New York now appears set to go forward, but without AIG’s willing participation.
AIG aims to prevent Starr from prosecuting any claims on AIG's behalf, but on Tuesday it characterized Starr as "likely to challenge" such an effort.
To outsiders, the idea that AIG, the recipient of a highly unpopular bailout, might turn around and sue its benefactor seemed the height of insensitivity.
On Tuesday, AIG's chief executive, Robert Benmosche, sought to navigate the delicate situation.