* Weighing lawsuit by former CEO over bailout
* Critics demand AIG drop fight
* Shares up in early trade
By Ben Berkowitz
Jan 9 (Reuters) - The board of American International Group Inc met on Wednesday to consider a lawsuit against the U.S. government over the terms of the company's bailout, a discussion directors defended as their responsibility but one that critics condemned as the height of ingratitude.
AIG is weighing whether to join a lawsuit filed by its former chief executive, Hank Greenberg, and his company Starr International, which owned 12 percent of the insurer before its rescue.
Greenberg alleges the rescue was unfair to shareholders, and that the Federal Reserve Bank of New York charged an excessive interest rate on its initial loan. He has sought billions of dollars in damages.
The idea AIG might sue the government struck a raw nerve with the public, which took to the Internet to vent its anger at what it views as the company's audacity. The volume of AIG mentions on Twitter rose more than 50-fold Tuesday, according to Topsy Analytics.
Former Obama administration adviser Austan Goolsbee said, "GO SCREW YOURSELVES" in a multi-tweet tirade. Comedian Andy Borowitz drafted a mock letter from the company to taxpayers, asking for more bailout money to pay for the cost of the lawsuit. Dozens of obscene comments were aimed at Chief Executive Robert Benmosche.
And those were the gentler barbs. The New York Daily News ran an editorial cartoon in which a lifeguard saves a drowning man with "AIG" on his belly. When the lifeguard asks the man how he feels, the victim says, "like suing you."
The vitriol was just like late 2008 and early 2009, just after the bailout, when AIG employees hid ID badges and their families were threatened amid an uproar over post-rescue bonuses.
A group of congressmen led by Vermont Democrat Peter Welch sent AIG's chairman a letter late Tuesday, advising, "Don't do it. Don't even think about it." Other members of Congress threatened hearings.
AIG took to Twitter to defend itself, saying it was legally obligated to at least consider legal action. But its defense mostly fell on deaf ears.
The board meeting began Wednesday morning and was still in progress, a spokesman said. A decision is expected by the end of the month.
Securities experts generally agreed that AIG's board was obliged to at least consider the prospect, though they also said a lawsuit was more trouble than it was worth.
"Given where AIG is now in its recovery and trying to become a more aggressive firm going forward, I can't see any drain of executive time is going to be worth that for AIG," said James Cox, a professor of corporate and securities law at Duke University School of Law.
The government rescued the company from the brink of bankruptcy in September 2008 with a bailout that ultimately topped $182 billion. After a recapitalization deal closed in early 2011, the U.S. Treasury owned 92 percent of AIG.
Treasury sold the last of that stake in mid-December. All totaled, the government has said it earned a return of $22.7 billion on the rescue.
AIG shares rose 0.4 percent to $35.81 in morning trading. The stock lost half its value in 2011 but then rose more than 50 percent in 2012, as it showed consistent profitability.