The US government’s emergency actions in the financial crisis have gone on trial as lawyers accused it of having illegally seized teetering insurance giant AIG in September 2008.

David Boies, the lawyer for Hank Greenberg, the former chairman of American International Group, sought to make a case that there was no need for the government to take the company over even if it appeared insolvent as the financial system was melting down.

Providing AIG with liquidity, as was done with banks at the time, was all that was necessary to stabilise the situation, Boies argued.

But instead the government took a step further, injecting $US85 billion ($A92 billion) into the company for a nearly 80 per cent share of ownership, erasing much of the value of the equity of existing shareholders.

Boies accused the government of “illegal exaction” that was backed up and justified by efforts to “demonise” the company, which Greenberg, 89, had built into the world’s largest insurer.

The government had already made a fully-secured loan to the insurer, Boies said as the trial opened.

“They had a loan that they charged extortion interest rates on… and yet they reached out to grab 79.9 per cent of the AIG shareholders’ equity,” he said.

“There was especially no justification of the taking of equity.”

But government lawyer Kenneth Dintzer defended the takeover, saying a collapsed AIG would have cause much more damage.

“The goal was not to save AIG. It was to save the world from AIG,” he said.

AIG shareholders were in fact helped by the rescue, he argued.

“No one can pretend they would be better off without the government’s intervention… 20 per cent of something is better than 100 per cent of nothing.”

Greenberg is suing the government via his Starr International Company, which was the largest single shareholder in AIG at the time of the government rescue.

Starr still holds about 1.3 per cent of the company and is seeking $US40 billion for its losses.