As we reported a couple weeks ago that Michigan will be the lead plaintiff in a lawsuit brought by many states against insurance giant AIG for allegedly misleading investors, including the Michigan state employee’s pension fund, about the security of AIG’s backing of credit default swaps. The Detroit Free Press asks a good question about that lawsuit:
 

Michigan Attorney General Mike Cox and Treasurer Bob Kleine struck a righteous tone last month when they announced the state would lead a national class action against battered insurer AIG for allegedly duping retiree pension funds.

“We are putting investment firms on notice. You will be held accountable,” said Cox. The AIG lawsuit is a “clear message that we will take every step necessary to recover lost funds,” added Kleine.

But who exactly is going to be held to account? Where are those recoverable “lost funds” going to come from?

Since mid-September, recall, AIG has essentially been a company owned by U.S. taxpayers, with the Federal Reserve taking an 80% stake in exchange for an $85-billion bailout (since inflated to about $170 billion).

So is Michigan’s AIG lawsuit a Pogo exercise with Michigan taxpayers suing the nation’s taxpayers (including themselves, no less)?

The article does point out that Kleine has a fiduciary responsibility to protect the state’s pension fund and that much is true. But if they win the lawsuit and are awarded damages, it would still be paid largely out of public funds already given to AIG in exchange for equity in the company. We would in essence be paying ourselves off.