The Greenberg Interview: Spitzer, AIG, Bailout and More

The near-collapse of American International Group (AIG) in 2008 came about because of the scare tactics and political ambition of one man — then New York Attorney General Eliot Spitzer, according to Maurice “Hank” Greenberg, former chairman and CEO of AIG, who left AIG earlier than he planned in 2005 because of Spitzer.

Greenberg says Spitzer’s attacks weakened AIG’s management to the point where directors worried more about their own liability than about the corporation. Spitzer also distracted executives who dropped many risk management practices that had been in effect during decades of growth and had kept the financial products division from engaging in the type of very high-risk endeavors that eventually led to AIG’s financial problems.

“The board had completely rolled over for Spitzer. They didn’t know what was going on. They abandoned all the risk management controls that we had had. Many of the people that were very critical left the company,” Greenberg says.

Greenberg’s account of the Spitzer years, along with his insider view of the 2008 financial crisis and the so-called AIG bailout, can be found in his new book, “The AIG Story,” and in a new interview with Wells Media Group’s Andy Simpson that is available on CarrierManagement.com.

Greenberg helped build AIG into the world’s largest insurer with a market value of $180 billion, forging relationships, inventing products and opening markets around the globe in places such as China, India, Japan and, at the end of the Cold War, in Hungary, Poland, Romania and other Soviet countries.

All was well until 2005, when Spitzer entered the scene.

The cornerstone of Spitzer’s attack against Greenberg was a finite reinsurance transaction with General Re for which no evidence of wrongdoing by Greenberg was produced.

Wells Media’s interview covers Greenberg as an angry, young military veteran who got his first insurance job at Continental Casualty to his life today as an industry veteran angry at Spitzer, Frank Zarb, Hank Paulson, Ed Liddy, Arthur Levitt and others who presided over the government takeover and partial dismantling of the company he built.

Spitzer is the main reason Greenberg wrote his book and did the interview:

“The point of writing the book, to me, at least, was what happened in the United States by an aggressive, and now, disgraced Attorney General. How one individual could help destroy a company that had a market value of $180 billion. How many pension funds suffered? Losses that were just dramatic. How many employees or retired people lost their life to one individual that was seeking to make a name for himself by taking down people. Not something you would expect in a country like the United States.”

In addition to not being a Spitzer insider, Greenberg was an outsider to the Goldman Sachs circle that included Paulson and Liddy, who Greenberg believes made AIG the fall-guy in the financial crisis while engineering a “backdoor bailout” of Goldman Sachs and other financial institutions.

Following, excerpted from the interview, is Greenberg’s account of what happened:

“Paulson, secretary of the Treasury, calls up Bob Willumstad, who’s then running the company, and said, ‘The only relief we’re going to give you is just one, and you’re going to either take it or not: $85 billion at 14.5 percent interest, and 79.9 percent of the company, and incidentally you’re fired. Now, sign the agreement.’

‘I’m not going to sign the agreement, you just fired me.’

So, he [Paulson] sends in Ed Liddy as his successor. Liddy is on the board of Goldman Sachs at the time he signs the agreement. He resigns from the board three days later, retroactively.

“Then $60 billion of the $85 billion goes out the back door, $12 billion to Goldman Sachs. And even the Arab Bank, which was 26 percent owned by Libya, and Gaddafi is still running Libya, gets access to the Fed window, and AIG is denied access to the Fed window.

Then after this deal of bailing out the $60 billion, AIG is muzzled and cannot talk about that. [It’s] forced to give a general release to all of the people that got the bailout, backdoor bailout. Does that sound suspicious to you?”

Greenberg is now leading a shareholders’ lawsuit against the government claiming the “bailout” was unconstitutional.

In the Wells Media Group interview, Greenberg also offers his views on current challenges for today’s insurance CEOs, including regulation and risk pricing, as well as his opinions on subjects including corporate culture, employee compensation, predictive modeling and climate change.

Topics AIG