American International Group Inc. should try to renegotiate the credit facility agreement it has arranged with the Federal Reserve Bank of New York.

Maurice Greenberg, a former chairman of AIG, New York, who continues to be a major AIG shareholder, makes that argument in a letter sent to current AIG Chairman Edward Liddy and also submitted to the U.S. Securities and Exchange Commission.

AIG has had to pay a 2% one-time commitment fee for the $85 billion New York Fed credit facility along with a 14% annual interest rate, and it must pay 8.5% of the available amount each year whether it uses the credit facility or not, Greenberg writes in the letter.

“Consequently, the loan carries an actual interest rate in excess of 14% and on top of that, the government receives 79.9% of the ownership of AIG,” Greenberg writes. “Bottom-line, this means that AIG cannot pay off this loan from the proceeds of selling assets in this market, nor can it pay the annual interest rate from earnings. As a result, thousands of jobs will be lost, pensioners will lose their savings, and millions of shareholders will be disenfranchised.”

Greenberg asks whether any winners have emerged from the current arrangement.

“It is hard to find one, except perhaps for certain of AIG’s transactional counterparties, who faced exposure in the tens of billions of dollars if AIG had filed for bankruptcy protection,” Greenberg writes.

Since the New York Fed set up the credit facility, the government has helped other financial institutions on much more favorable terms, Greenberg writes.

If the New York Fed were getting non-voting preferred stock, with an approximately 6% dividend and a 10-year right of redemption for AIG at a 10% premium, rather than a 79.9% stake in the company, the credit facility arrangement “could be turned into a win/win situation,” Greenberg writes.

AIG could raise outside financing by making a rights offering later, when the markets have stabilized, and by selling assets at a time when conditions would allow asset sales to take place in an orderly manner, Greenberg writes.

“The role of government should not be to force a company out of business, but rather to help it to stay in business, especially a company that has been the pride of its industry,” Greenberg writes.