I have just finished reading both Hank Greenberg’s The AIG Story, and Ron Shelp’s Fallen Giant. Both books are required reading for anyone who has an open mind, wants to see both sides of a very troublesome and costly period in the economic history of the US. Most accounts in the press over the years since the resignation of Hank Greenberg as CEO of AIG in 2005, focus on alleged wrongdoings of Greenberg and of AIG after he left. The economic crisis beginning in 2007, arguably triggered by the government and the FED attempting to boost economic growth by driving interest rates down and thus stimulating home purchases and home building to “bubble” proportions, ultimately brought AIG almost to ruin. After Greenberg left, it turns out, the Financial Products (FP) unit was allowed to loosen its underwriting criteria and size limits, foregoing hedging in many cases, and participated in credit derivative swaps involving securitized tranches of sub-prime mortgages, which were the instruments first and of greatest proportion to fail. The creation of such instruments was not AIG’s role—that was Goldman Sachs and other investment bankers, but AIG did back them financially.
I had the privilege of working as a profit center manager at AIG between 1995 and 1999. I had a good deal of contact with Hank Greenberg, because I managed a new venture and he had the uncanny ability to understand and be deeply involved in dozens of businesses, including mine. While I did experience his wrath at times, I left with great respect for this amazing executive—37 years at the helm of a business which grew to be the largest insurance company in the world, combining a demand for performance, along with an almost forgotten loyalty to old timers, whether they be elevator operators or executives. Many officers and employees deserve credit, as he often points out, but none remotely as much as he does.
So, I hope many will read these two books and understand that what happened was tragic. I join the few who feel certain the problems of 2007 and beyond would not have developed if he had not been ousted, and that his ouster was entirely inappropriate—a political campaign by an overzealous public officer (Eliot Spitzer) who, along with others later, cost the shareholders and the American public a very great deal. I feel confident that if any of our top 100 financial services companies had a zealous independent audit of the last 10 years of books, they would certainly find a number of “foot faults” of equal or greater impact than the small ones which were used to push Greenberg out. And, I believe we had alternatives in the resolution of the FP portfolio risks developed after his resignation, that cozy government relationships with investment banks like Goldman Sachs precluded—and this cost shareholders inappropriately.
This is a story, largely, of our government at fault.
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