The world is full of victims of American International Group Inc’s bad judgment, whether they know it or not.
AIG’S push to market ever more exotic securities with ever decreasing attention to risk helped accelerate the economic tailspin felt around the world.
For victims, count US taxpayers, now propping up the collapsed insurance giant with a $150 billion package and another $30 billion sitting in the wings. This irks even one of the architects of the bailout, Federal Reserve Chairman Ben Bernanke, who told the Senate yesterday the AIG bailout angered him more than any other.
“AIG exploited a huge gap in the regulatory system” and “made huge numbers of irresponsible bets,” Bernanke said.
When it lost those bets, the company couldn’t pay up. It turned to the very government whose rules it slid around.
Yes, there are lots of AIG victims. But one man who claims that title is clearly not one of them.
Maurice “Hank” Greenberg, filed suit this week against the company he ran for 20 years, which he built into a behemoth. He claimed in a CNBC interview he lost $2 billion, and in the litigation blames those who took over the company after him.
Since being forced out of AIG in 2005 for dubious deals of another kind, Greenberg has spent a lot of time and energy dissing his successors.
They lack competence, he says. They ramped up risky investments and slacked off on vetting. They misled investors, notably Greenberg, by painting a solid outlook knowing of weaknesses in its books.
BEGGING THE GOVERNMENT
I’m sure it’s wrenching to see a firm you spent decades building into the largest insurance company in the world with the highest possible bond rating go begging to the government for its very survival.
To watch the shares you once made golden drop from $48 to 43 cents in a year has got to pack a punch in the gut.
But that is hardly the whole story.
What Greenberg rarely mentions is that it was on his say-so that AIG created its Financial Products unit, which is where these fancy new derivatives were created, vetted (or not) and marketed.
Greenberg himself ran off the unit’s creator who had insisted on constant critical analysis and re-vetting to minimise risk. The guy, Howard Sosin, just wouldn’t put himself under Greenberg’s thumb, so off he went, according to a recent series in the Washington Post.
CREDIT DEFAULT SWAPS
Nor is Greenberg fond of pointing out that it was under his watch that AIG began marketing credit default swaps linked to subprime mortgages, or that it didn’t actually take into account the risk involved in resting so much investment, so many bets, on so little substance.
And it is rarely convenient for him to mention his status as an unindicted co-conspirator in a $500 million deal involving General Reinsurance Corp that got the indicted co-conspirators convicted and imprisoned.
The company has so far paid $1.8 billion in fines and penalties to resolve civil claims by government regulators looking into the Greenberg era at AIG.
A civil case unfolding for the past five years in Delaware alleges “pervasive, diverse and substantial financial fraud” led by Greenberg, as Chancery Court Judge Leo Strine Jr. put it in a ruling last month.
AIG insiders engaged in a variety of shams and lies, shareholders claim, to trim taxes, boost share price and enhance their compensation.
CONTINUING THE SUIT
Strine’s 104-page decision said shareholders had put enough meat on their allegations to keep the case going against Greenberg and others, his denials of wrongdoing notwithstanding.
Those matters aren’t directly connected to AIG’s complete meltdown over the past few months. But at a minimum, they put Greenberg into something of a pit instead of aloft on moral high ground while he blames others for AIG’s troubles.
For example, current AIG CEO Edward Liddy, formerly head of Allstate Corp, doesn’t have what it takes to run AIG, Greenberg said in recent interviews.
“A domestic automobile insurance company does not equip you to run a global company,” Greenberg told CNBC.
Maybe Greenberg has a better idea how to salvage his old company. I don’t know. But while he blames his successors for AIG’s demise, Washington for a counterproductive rescue plan and an overzealous New York Attorney General, Eliot Spitzer, for getting him kicked out of AIG, he needs to take some of the blame himself.
TRYING TO STAY AFLOAT
He might pay attention to another CEO whose company is trying to stay afloat, Jeffrey Immelt, at General Electric Co.
“Our company’s reputation was tarnished because we weren’t the ‘safe and reliable’ growth company that is our aspiration,” Immelt told shareholders in a letter released this week.
“I accept responsibility for this,” he wrote.
OK, so it is safer for a CEO to admit certain failings when not listed as an unindicted co-conspirator in a criminal case.
But it would be refreshing if Greenberg would stop for a moment pointing his finger at others and admit that he, too, was part of the problem.
