Maurice Greenberg

Ex-CEO Hank Greenberg hits home run against AIG and Spitzer

by John Berlau on July 7, 2009 · 3 comments

in Bailout Watch, Features, Insurance, Legal, Personal Liberty, Politics as Usual, Sanctimony, Zeitgeist

Once again, the team of politicians and corporate bureaucrats pursuing the witchhunt against former American International Group CEO Maurice “Hank” Greenberg have struck out. Or maybe the better baseball analogy would be that they hit another ball into foul territory.

Greenberg, who built AIG into a financial services powerhouse during the 35-plus years he served as its head, won another legal round today as a federal jury in New York City ruled that he did not have to reimburse AIG for shares taken by an investment firm Greenberg owned when he was forced out as CEO. The jury found that the shares belonged to Greenberg’s company, Starr International, under terms of the original contract.
Yet outrageously, it appears that AIG will continue to use the billions in taxpayer dollars it has receive to pursue this frivoulous litigation agianst Greenberg.
The jury’s verdict today is the latest piece of evidence that much of AIG’s problems — and the systemic disruptions they have caused — can be traced to political meddling. Greenberg was forced out in 2005 because of baseless charges of accounting fraud by then-New York Attorney General Eliot Spitzer. Nearly all of Spitzer’s charges have been dismissed, but the mere allegations were enough to cause AIG’s board to force Greenberg out and to be replaced with a succession of caretaker CEOs more pleasing to politicians like Spitzer.
Greenberg has testified that as many mortgage-related credit default swaps were written in the nine months following his departure as AIG had issued in the entire previouse 7 years combined. No one has refuted him on these specifics. We will never know what would have happened had Greenberg stayed on as CEO, but given his track record, it is doubtful the implosion would have been so sudden and so severe.
In sum the lesson of AIG is not that there should be more government meddling, but less arbitrary intervention by subprime politicians.

AIG CEO Liddy owns millions in stock in bailout beneficiary Goldman — Tim Carney blockbuster in DC Examiner

by John Berlau on April 10, 2009

in Bailout Watch, Features, Odds & Ends, Politics as Usual

Everyone should read the blockbuster exclusive in today’s Washington Examiner in which Timothy P. Carney confirms that American International Group CEO Edward Liddy — appointed to his position at the behest of Hank Paulson and Tim Geithner after the government takeover of AIG in September — still owns more than $3 million in stock in Goldman Sachs, one of the biggest beneficiaries of the AIG bailout.

I am privileged to be quoted in this article that both breaks news and puts it into an informative policy context. The dogged investigative reporting conducted for this piece by Carney, a former Warren T. Brookes Journalism Fellow at CEI, should be enough to garner him several awards, and in my opinion this piece and likely follow-ups may be Pulitzer Prize-worthy material.

A couple weeks ago, after the brouhaha about the “retention” bonuses paid to the AIG Financial Products employees, Liddy’s calm demeanor before Congress and the media helped diffuse the situation. He emphasized that he was making a nominal $1-a-year salary and argued he was doing the CEO stint merely as a public service. Liddy wrote in a recent Washington Post op-ed that “my annual salary is $1. My only stake is my reputation.”

But Carney found that Liddy was not telling the whole story about his real stake in the AIG bailout. Namely that Liddy, as Carney notes, has “an acute financial stake in one of AIG’s counterparties—namely, his $3.2 million personal investment in Goldman Sachs.” And under Liddy’s direction, AIG disbursed nearly $13 billion from the taxpayer bailout money to Goldman, in a move many say is more disturbing than the employee bonuses that were the source of the recent controversey.

Everyone from former AIG CEO Maurice “Hank” Greenberg to liberal Rep. Brad Sherman, D-Calif., have expressed outrage that Goldman and other banks were compensated at full value for their derivative contracts. Goldman had bought billions in credit deafalt swaps from AIG. Had AIG gone into bankruptcy, Goldman and other counterparties would have almost certainly had to take a “haircut” on the contracts due to declining market conditions.

In the article, Carney generously writes that “there is no reason to believe Liddy is influencing AIG actions to unfairly benefit Goldman.” Yet Liddy had to be aware that many were saying Goldman may not have survived the hit if AIG substantially reduced payment. He resigned his position from Goldman’s board of directors when he became CEO of AIG, ostensibly to avoid conflict of interest, but has not seen fit yet to sell his more than 27,000 shares in Goldman stock, which he is listed as holding in the firm’s 2008 proxy statement. Carney reports that “an AIG spokeswoman confirmed for the Examiner that Liddy still owns all these shares.”

Carney points out the paradox of “strange public-private chimeras like AIG spawned in this age of bailouts.” When it bailed out the firm, the government took an 79.9 percent stake in AIG, making AIG in one sense a government entity. Yet, as Carney points out, this “situation represents a potential conflict of interest that would never be allowed in a government agency.”

It also likely wouldn’t fly in a purely private company, where directors and shareholders are on guard against executives’ “related party transactions” that aren’t in the company’s best interest. Yet, because he is running a public-private hybrid, Liddy lacks accountability to both to private shareholders and government ethics rules

Former Treasury Secretary Paulson, himself a former Goldman Sachs CEO, has a lot to answer for in forcing out AIG CEO Robert Willumstad and bringing on Liddy to replace him. So does Geithner, who was heavily involved in the AIG bailout as president of the Federal Reserve Bank of New York. Why did they not insist that Liddy divest his holdings or find someone who didn’t have this conflict?

Above all, this shatters the illusion that the government can magaically take over a company, fire the CEO, and run it more efficiently for the taxpayers. I have written before on Open Market that Obama’s firing of Rick Wagoner was not the first time the government forced out a CEO. Even before Paulson ousted Willumstad after the bailout, then- New York Attorney General Eliot Spitzer effectively forced out longtime AIG CEO Greenberg on baseless charges that have almost all been dropped. Greenberg built up AIG successful 35-year tenure, and has testified that the issuance housing-related credit defaut swaps at the center of the firm’s problem exploded in the months after he left.

As I tell Carney in concluding paragraph of the story, “The whole AIG experience demonstrates the fallacy that the government can efficiently sack CEOs and replace them.”