Former AIG chief criticizes successors and bailout
Friday, April 3, 2009
WASHINGTON -- The man who built insurance giant American International Group Inc. from a startup to a global behemoth said he didn't mismanage the company -- but the government did.
Following weeks of public and congressional outrage over largest corporate failure in U.S. history, Maurice "Hank" Greenberg, AIG's chief executive until March 2005, said taxpayers got a raw deal in the largest bailout of the financial crisis.
In his first testimony since the government stepped in with the first of four bailouts for AIG, Greenberg told the House Oversight and Government Reform Committee Thursday that his leadership team had "nothing to do" with failures that so far have cost taxpayers more than $182 billion.
But he spread blame generously across virtually every other party involved in the company and its rescue -- including subsequent management, federal regulators and ratings agencies.
An AIG spokesman disputed Greenberg's claims and lawmakers questioned the truthfulness of his testimony.
Since taking over the company, the government has left taxpayers with a nearly 80 percent stake "in a steadily diminishing asset" and no good exit strategy, Greenberg said.
The 83-year-old said he never would have made the disastrous decision to sell hundreds of billions of dollars in guarantees for corporate and consumer debt.
"When I left the company, it was a healthy company," Greenberg said, citing its strong earnings and share price at the time. He did not discuss liabilities AIG was accumulating on its balance sheet through derivatives and a securities lending business.
Greenberg blamed his successors for all of New York City-based AIG's problems. He said they recklessly abandoned "comprehensive and conservative" risk management procedures that he and his executive team employed.
"AIG's business model did not fail; its management did," Greenberg said. He went on to criticize their handling of the financial products division, which he said "functioned quite well" under his leadership.
That division wrote the notorious credit-default swaps that have forced the company to pay more than $50 billion to U.S. and foreign banks. Greenberg said the payments never should have been made. The financial products group's liabilities should have been "walled off" from AIG, and counterparties should have been given government guarantees instead of being paid full value for assets that now are worth much less, he said.
The swaps are commonly used contracts to insure against the default of financial instruments such as bonds and corporate debt. But they also are bought and sold as bets against bond defaults.
Besides forcing AIG's rescue, they played a prominent role in the credit crisis that brought the downfall last year of investment firm Lehman Brothers Holdings and Merrill Lynch & Co. selling itself to Bank of America Corp.
"I think they got greedy," Greenberg said. "You would have thought that somebody, whether the president CEO or chairman would have called a halt" once AIG lost its triple-A credit rating.
In essence, AIG lent its credit rating to other companies for a small charge so they could reinvest money spent on securities backed by mortgages and other debt. When it lost that rating, it was forced to put up billions in collateral.
Refusing to accept blame for the failure to offset risk on billions of dollars in derivatives the company sold during his 38-year tenure, Greenberg said the division's most dangerous derivatives portfolio doubled in size in the nine months after he left.
AIG spokesman Mark Herr disputed those claims, saying Greenberg expressly approved the division's selling of the risky multi-sector credit-default swaps.
"He refuses to acknowledge that he approved entry into the credit default swap business, approved more than $40 billion of swaps written on (debt obligations) containing sub-prime loans, and didn't hedge or put up reserves against them," Herr wrote in an e-mail.
He also distributed a four-page memo detailing Greenberg's history of litigation and run-ins with regulators.
California Rep. Darrell Issa, the committee's senior Republican, said he doubtet Greenberg's truthfulness given his involvement in numerous lawsuits related to AIG's failure. And longtime AIG critic Rep. Elijah Cummings, D-Md., rejected Greenberg's finger-pointing.
"I'm convinced that the systemic problems at AIG go far deeper than mistakes made in the four years since you left the company," Cummings said.
Still, Greenberg spent much of his testimony criticizing the government's plan to prop up AIG, calling it "highly controversial and downright puzzling."
"The goal of government should not be to liquidate large companies that have demonstrated they can succeed if properly managed," Greenberg said. "It should be to restore them so that they can be employers and taxpayers."
In a statement e-mailed late Thursday afternoon, Greenberg attorney Lee Wolosky defended his client's testimony. "AIG has launched a taxpayer-funded public relations campaign to try to blame Mr. Greenberg ... for massive losses that occurred" after he retired, Wolosky wrote.
AIG's largest shareholder is C.V. Starr & Co. Inc. Greenberg currently is that firm's chairman and chief executive. Greenberg and Starr have for years been the subjects of lawsuits and regulatory actions related to his tenure at AIG.
AIG has sued Greenberg for breaching his fiduciary responsibility by misappropriating shares held in trust for AIG's deferred compensation program. After Greenberg left, AIG paid $1.6 billion to settle a range of issues with regulators including the Securities and Exchange Commission, Justice Department and New York Attorney General.