Former American International Group chairman and CEO Maurice “Hank” Greenberg called the intervention by the federal government in the company a “nationalization” in a Washington public appearance on Thursday.
In a feisty, 90-minute monologue, Greenberg also said he wouldn’t have allowed the notorious AIG Financial Products division to collateralize the purchase of almost $80 billion worth of securities backed by mortgages of various quality through use of its life company reserves.
In his remarks, the 87-years young Greenberg took on the company, Eliot Spitzer and the regulatory environment.
For one thing, noting that his successor, Martin Sullivan, was fired over the telephone by then-Treasury Secretary Henry Paulson in 2008, Greenberg said he declined to talk to Paulson when they saw each other during a recent Washington event.
When approached by Paulson, he would only tell him, “Read my book,” Greenberg said.
The occasion for Greenberg’s appearance was to tout the two-part book he has written about AIG, “The AIG Story.”
He currently is CEO of the company that was the predecessor of AIG, C.V. Starr Co., founded in China in 1919. He took it back after going to court with AIG.
He said Starr does business in a number of foreign countries, but doesn’t currently write or broker life insurance products.
He declined to go into detail about the decision of AIG’s current management last month not to join in his lawsuit against the government.
He said the federal government could have helped AIG absent the “nationalization” that he said occurred, whereby the government took a 79.9 percent stake in the company in September 2008 in exchange for $85 billion in cash.
But, he noted, after rejecting joining AIG in its suit seeking $25 billion against the government in the Federal Court of Claims in Washington, AIG several weeks later did sue the New York Federal Reserve Bank after the NYFed declined to support AIG in its efforts to recoup $14 billion lost on mortgage-backed securities (MBS) issued by Countrywide, later taken over by Bank of America. That suit was filed in early February in New York state court.
Greenberg said that AIG had had assets seized twice, in Iran and Pakistan, but had won settlements in the World Court that reimbursed the company.
“We were nationalized in the United States, and that’s the reason we’re suing, as a major shareholder, to get compensated,” he said.
In questioning later, Greenberg also said AIG did not participate in the derivatives business to anywhere near the extent it did after he left in 2005.
“We understood how to manage AIG Financial Products,” he said. AIG got into trouble after counterparties to the credit default swaps (CDS) sold by AIG Financial Products demanded collateral as the value of the MBS declined, and it became difficult to raise cash. AIG Financial Products sold $2.77 trillion worth of CDS, and the NYFed provide cash and the government’s support as new management wound down the huge speculation in MBS by AIG through its London-based Financial Products unit.
“We had an enterprise risk management structure” before ERM was conceived, he said. He also said that during his tenure, AIG knew every day how much risk was outstanding.
“We wouldn’t have been in that position had I been at the company,” he said. “That just never would have happened.”
Asked during the questioning period why he did not intervene as AIG’s largest shareholder as the Treasury Department and the Federal Reserve Board and NYFed intervened in the management of AIG and a new board was constituted, Greenberg said, “They were at war with me.”
He also acknowledged, “I was stupid. I thought no one could sink the company.”
He appeared bitter about his ouster, saying the majority of the AIG board abandoned him after New York State began investigating AIG’s activities in 2004, and forced him out in 2005.
He labeled the state attorney who launched the investigation that resulted in his ouster as the “disgraced Eliot Spitzer.”
He quoted Spitzer as saying, “I am going to take Hank Greenberg down,” and said the transactions Spitzer went after had been approved by AIG’s outside auditor for five years.
He also railed against New York’s Martin Act, the law Spitzer used to pressure Greenberg to leave and to impose a huge fine against AIG in 2005. He said the law allowed New York prosecutors to go after a company without proving criminal intent.
He also said he would not have used the reserves of AIG’s life businesses to collateralize purchases of MBS of various quality, as AIG did after he left.
The Fed later created a facility called Maiden Lane III to house those securities in exchange for liquidity for AIG’s life businesses.
He noted that of that initial $85 billion in aid, $60 billion was given to counterparties of CDS AIG Financial Products had sold as insurance against losses on MBS that were rated AAA, but turned out to be “garbage.”
He noted that $14 billion of that was given to Goldman Sachs, as the counterparty to MBS that GS had created.
He said AIG management made a mistake giving cash to CDS counterparties when AIG’s credit rating was lowered, saying there was no objective pricing on CDS.
He said that when approached with margin calls, if he would have been CEO, he would have told the counter-parties to sue.
He said the regulatory environment has changed considerably since the Enron crisis of the early part of the decade, and he included insurance companies in discussing that issue.
He said it takes much longer to process insurance transactions than it used to because of the heightened regulatory environment, even though the industry is state-regulated. And, he said, that deals with international as well as domestic transactions.
“The regulatory environment is going to hold back growth,” he said.