The US Government’s loan to AIG will see the liquidation of the company and the loss of thousands of jobs as well as billions of dollars in shareholder value, according to its former CEO Maurice “Hank” Greenberg.

In a letter to AIG CEO Edward Liddy, Mr Greenberg says the insurer should seek modified terms to the US Government’s $US85 billion ($123 billion) bailout as the 14% annual interest rate is too high.

“By requiring AIG to pay interest on money it does not borrow, the agreement encourages the company to draw down the full amount of the loan even if it does not need the capital,” he said. “AIG will have no choice but to engage in a fire-sale of profitable assets.”

Mr Greenberg wants the loan changed so the Government acquires non-voting preferred stock in AIG that pays a 5% or 6% annual dividend and AIG would have the right to redeem the stock over 10 years at a 10% premium.

“At a minimum, AIG should be afforded the same borrowing terms as other companies,” he said. “AIG has more than $US1 trillion ($1.45 trillion) in assets, including key AIG assets that already act as security for the $US85 billion ($123 billion) loan facility.”