A fighter never quits, and if there’s one way to describe Maurice R. “Hank” Greenberg, the former head of the American International Group, it’s as a fighter.
Beginning on D-Day, when he participated in the storming of Omaha Beach as a teenager, continuing through his fight with then-New York Attorney General Eliot Spitzer about an accounting scandal that led him to resign from AIG in 2005, and up to a series of bitter lawsuits against the company he led for nearly 40 years, Greenberg’s been a fighter.
His latest offensive is a $25 billion lawsuit filed against the federal government for, he alleges, forcing AIG to accept an $85 billion bailout at a 14.5 percent interest rate and then taking over the company without providing just compensation in September 2008. Despite having more than $120 billion in revenue in 2007, AIG’s immediate problems nine months later centered on a lack of liquidity: It didn’t have enough cash to meet $15 billion worth of collateral calls.
“AIG should never have accepted the bailout,” Greenberg said during a talk at the National Press Club in Washington on Feb. 21. Greenberg insisted that the Fed could have figured out a way to get AIG the needed funds without taking over the company. “The company had $800 billion in assets that it could have put up as collateral for the loan,” he said. Greenberg added that if the Fed had given AIG the same type of offer it had extended to other troubled financial institutions at that time, AIG wouldn’t have needed the bailout.
At age 87, Greenberg, who was in town to promote his book, “The AIG Story,” co-authored with George Washington University law professor Lawrence A. Cunningham, shows no sign of backing down.
Nearly five years later, Greenberg continues to challenge not just the terms of the bailout, but its very purpose. Greenberg argues that the Fed bailed out AIG primarily to save the so-called counterparties to AIG’s insurance-like contracts known as credit default swaps that provided a way for investors to buy insurance protection against default.
“Sixty billion of the $85 billion was a backdoor bailout,” Greenberg said, adding that “Fourteen billion of that amount went to Goldman Sachs.”
He still loathes Spitzer, who resigned as governor of New York in 2008 amid a prostitution scandal. Greenberg condemned Spitzer for essentially convicting him of “murder for a foot fault” relating to a reinsurance transaction. Following Greenberg’s resignation as head of AIG in March 2005, AIG lost its triple-A credit rating and had to post more than $1 billion in collateral.
Despite AIG’s downgrade, AIG ramped up its lucrative credit default swap business. While there’s disagreement over how many of those swaps were written on sub-prime mortgages, with Greenberg insisting that he hadn’t authorized such swaps, there’s no dispute that AIG eventually wrote swaps worth more than half a trillion dollars.
Though Greenberg admits that he led AIG into the credit default swap business, he won’t admit that his actions may have contributed to AIG’s collapse.
“Just look at the record,” Greenberg said, pointing to AIG’s $1.3 trillion value when he resigned.
When asked whether he knew that AIG’s Financial Products unit had moved into a very risky business of insuring exotic derivative products, Greenberg said, “No, we were at war with each other.” When I asked him whether he thought that Goldman Sachs “pushed AIG over the edge,” as has been asserted, he nodded in agreement.
We’ll never know if Hank Greenberg could have staved off the disaster that struck AIG. But, if he hadn’t been forced out, it’s entirely plausible that AIG wouldn’t have gotten into the financial trouble it did. Greenberg cared a lot, both emotionally and financially, about AIG. He joined the company that later became AIG in 1960 and took it public in 1969. With control of some 300 million shares of AIG that were once worth $21 billion, he had a very strong interest in the company’s financial health. The collapse of AIG drove Greenberg’s personal fortune from the billions down to around $100 million and pushed him off Forbes’ list of the richest Americans for the first time since 1985.
Greenberg is right about one aspect of the bailout. Although it wasn’t public knowledge in September 2008, in March 2009, AIG revealed that it had sent billions of dollars of the Fed’s bailout funds straight to companies, including Goldman Sachs, Merrill Lynch and UBS, that were holding the riskiest derivatives. We also know that AIG had been making collateral payments to Goldman Sachs well before the September rescue.
By now, taxpayers are probably tired of hearing about AIG. The fact that Greenberg asked the company to join him in his lawsuit against the U.S. government led to ridicule and insistence from AIG that it was “grateful” to the government for saving it in 2008 and wouldn’t join the lawsuit.
Given the hysterics that have surrounded AIG, taxpayers would be forgiven for being misinformed about how AIG has helped them. In fact, although Greenberg may not agree, taxpayers have no right to be outraged over the AIG bailout, which eventually grew to more than $180 billion.The government recently sold its stake in the company for a $22.7 billion profit. And that may make the argument about the cost of AIG’s bailout somewhat beside the point.
Joann Weiner teaches economics at The George Washington University. She has written for Bloomberg, Politics Daily, Tax Analysts and worked as an economist at the U.S. Treasury Department. Follow her on Twitter: @DCEcon.