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AIG Founder Perfects the Fault Swap

By Dana Milbank
Friday, April 3, 2009

For a guy whose company is synonymous with the collapse of the world economy, Hank Greenberg has a remarkably clear conscience.

The AIG founder and former chairman came before a congressional committee yesterday to declare that he is utterly blameless -- a claim that requires ignoring the fact that his company created the financial instruments that caused the loss of trillions, the ruin of millions and a government bailout in the hundreds of billions.

"The massive losses at AIGFP" -- the AIG unit that developed the catastrophic credit default swaps -- "resulted significantly from a shift in a way the unit did business after I left the company in the spring of 2004," Greenberg argued. Actually, it was the spring of 2005 that the AIG board ousted Greenberg because of a federal fraud investigation that led the company to restate years of earnings -- but facts did not clutter his narrative. "Let me be clear," he said. "AIG's business model did not fail. Its management did."

Members of the House oversight committee were stunned by the self-exoneration.

"When you refer to management, are you including yourself in that category?" asked Elijah Cummings (D-Md.).

"No," Greenberg answered without hesitation.

"You don't see your role in the company as being part of the failure -- is that what you're saying?"

"Yes," Greenberg replied. "When I left the company, it was a healthy company. . . . We had no problems."

Cummings pointed out that just one day after Greenberg left, AIG's debt rating was downgraded -- the event that precipitated the unraveling -- "as a result of the failures that occurred on your watch."

"Do you accept any responsibility at all for the events leading up to that critical moment?"

"No, I don't," Greenberg replied. "Nothing to do with me whatever."

Greenberg may have a curious sense of history, but his timing is excellent. As The Post's Brady Dennis has documented, he left AIG just months before it became obvious that the credit default swaps -- particularly those linked to subprime mortgages, were becoming a major problem. Likewise, he came to town two weeks after the rage over AIG bonuses died down, resulting in a much gentler reception than Edward Liddy, the man brought in to clean up the mess, received last month when he appeared before a different committee.

Only a third of the public seats were occupied, and a lone representative of the left-wing group Code Pink (which disrupted Liddy's hearing en masse) arrived late and left early. Maybe it was his age -- Greenberg is 83 and stooped -- but, compared with Liddy, he was treated with deference. "Everyone is eager to learn more from you, Mr. Greenberg," cooed Carolyn Maloney (D-N.Y.).

Greenberg, seated at the witness table with his superlawyer, David Boies, wiped his nose with a handkerchief after taking the oath and took an early opportunity to mention a recent bout with pneumonia. He spoke so softly that lawmakers strained to hear his opening statement, in which he blamed his successors in AIG management (many of whom, it so happens, were the same people who had been working under Greenberg).

"Who's responsible for the fall of AIG?" asked the chairman, Edolphus Towns (D-N.Y.).

"Clearly, the successor management has to be charged with that," the witness replied.

"What you failed to mention is that a good portion of those risky bets occurred while you were still at the helm of AIG," Cummings needled. "How many of those swaps were issued under your leadership?"

"I can't give you the answer sitting here right now," Greenberg demurred.

Cummings requested five more minutes to test Greenberg's protestations of innocence. He read a statement from AIG about its former executive, saying "Greenberg led AIG into the credit default swap business" and is "being investigated by the SEC and the Justice Department." Cummings asked Greenberg about AIG's claim that, when he was CEO, swaps were written without "hedges" to protect the company from losses.

"Hedging at that point was not necessary," Greenberg answered. "It was a well-run organization. It changed when I left."

Lawmakers failed to elicit a single instance of fault from Greenberg. AIG's claim that he misappropriated $4 billion in assets? "Totally incorrect." Couldn't control the derivatives business? "Not true at all." Settling charges that AIG was involved in "sham commissions"? "I don't think we did anything improper." The lack of regulation of $2.7 trillion in derivatives contracts? "That's notional value."

Jason Chaffetz (R-Utah) pointed out that Greenberg's charity has been stingy in its payouts and asked: "Would you be willing to give this money to go back to the taxpayers?"

"Why would it go back to the taxpayer?" an indignant Greenberg shot back, suggesting an alternative: "You can go on the street and start collecting."

Chaffetz cited the claim by Robert Mundell, a Nobel Prize-winning economist who named Greenberg as one of "five causes of the crisis."

"I think he's wrong," Greenberg retorted.

After four hours, the lawmakers were struggling to square the witness's answers with the obvious reality. "It's hard for me to believe that some of this didn't happen before you left," Towns said.

The blameless Greenberg pitied his questioner. "I'm sorry if you can't believe it," he said.

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