THE STASH MARCH 2, 2009
Amid the news today that the federal government will pump up to $30 billion more into the insurance giant AIG and ease the terms on its earlier infusions, I decided to ask former AIG CEO Maurice R. "Hank" Greenberg for his thoughts on what's become of the company. Greenberg spent over 35 years running AIG, building it from an obscure, second-rate insurer to one of the largest companies in the world before stepping down in 2005. (Greenberg resigned amid pressure from then-Attorney General Eliot Spitzer over alleged accounting improprieties.*)
NS: How are you?
MRG: Not too bad. I’m sad about what happened.
NS: Tell me what you think happened.
MRG: Well, I think first of all, the three successive CEOs after me were inadequate for the job. [Current CEO Edward] Liddy is--I’ve known him for many years. He ran Allstate, a domestic automobile insurance company. [Liddy spent several years as CEO of Allstate, which mostly sells domestic auto and home insurance.] How do you expect him to know about an international company? He’s a good friend of [former Treasury Secretary Hank] Paulson--he was on the Goldman board. That’s how they chose him. He’s totally inadequate for the job.
The Fed and Treasury, I think, came up with plans that are so complicated, no one seems to understand them. Including the Fed. A far more simple direct way of doing this--of maybe saving AIG, a way for the taxpayer to get paid back--was to rebuild AIG. Not to destroy AIG. Rebuild it. Spread the loan out over 15-20 years, make the rate of interest not confiscatory. What should the job of the Fed and Treasury be? To help rehabilitate a company, help it become a taxpayer again, an employer. The way they’ll [the Fed and Treasury will] do it, they [AIG] won’t be taxpayers because they won’t exist. The rest will be sold to foreign countries. They’ll be taxpayers there and employers there.
NS: What accounts for all the losses AIG accrued on the insurance side? This [the record $61.7 billion loss] isn’t just losses for AIG Financial Products on stuff like credit default swaps...
MRG: It’s a combination of different things. It’s not that the business they wrote was poor [that is, the insurance policies they sold]. It’s that the investments they made were poor [the way they invested the revenue from the insurance policies]. Poor investments, and in financial services--which is AIG Financial Products [which made the bets on credit default swaps]. There are other things as well. Mark to market accounting caused a lot of losses. That’s paper. That part is paper. Everything--look at the results. I can’t believe I’m looking at the same company. It’s incredible. Everything I look at is bad. A net loss of $61.5 billion…
NS: So if you were Treasury Secretary, what would you have done with AIG?
MRG: What I would have done--I wouldn’t have done the plan they just came out with, first of all. It’s so opaque, no one knows what the hell the plan is. ... I would have broken the company into--call it two parts. [First,] recoverable and recovering assets. Taking all the stuff that could recover--in one year, five years, ten years, take some of the toxic assets you wanted off the balance sheet. Put that in a single company. Give it to the Fed. They would buy it and own it. It probably would come out all right over a period of time.
[Second,] the ongoing companies would remain in AIG, the operating companies. There are some units that you would sell--not now, but when the market recovers--ILFC [International Lease Finance Corporation, AIG’s airplane leasing subsidiary] and things like that. I would put in a new management team. This guy [Liddy] is the wrong guy. He ran a domestic automobile insurance company. He’s not equipped. They need a management team that has common sense, a board of directors that really can be of assistance. They’ve had three sets of boards now. They ought to be sued and fired. They’re outrageously incompetent. So those are the things …
NS: Would you [that is, C.V. Starr and Co., the company Greenberg runs] potentially buy pieces of what’s now AIG from the government?
MRG: It’s possible. Right now--I’m busy putting together, hiring people who come to us every day [from AIG]. They come to us every day, they come with business. It’s a very sad story. I spent 38 years building the largest, most profitable company in its field in history. To see what they’ve done to it…
NS: Have you talked to Treasury about this?
MRG: No. I’ve talked with--Geithner made his mind up about what he’s going to do. He's following same track Paulson did. I’ll tell you, the problem is talking to people with no knowledge of the industry or the business. You might as well talk to the wall… I’ve talked to Larry [Summers]. I know Larry a bit. He’s a very bright guy. You know--I think he’s, in many ways, he’s the most competent on the economic side down there. I would have liked to have seen Paul Volcker as Treasury secretary. I think he would have given a great deal of confidence to the market. God knows it needs it. I think Geithner--I’ve known Geithner a long time. He’s smart. I’m not sure he has the experience for this kind of role. He’s been thrown into a very, very difficult situation. Volcker lived through one of these. I think--he’s got a great deal of respect worldwide.
*Updated for context.