Hank Greenberg Should Be Shot Into Space for Suing the Government Over the AIG Bailout
Greenberg is physically incapable of admitting any mistake he’s ever made, and he’s made plenty of them. Among other things, Greenberg in 2000 helped AIG artificially bolster its reserves by green-lighting a phony reinsurance transaction with a company called General Re (a subsidiary of Warren Buffett’s Berkshire Hathaway) that puffed up AIG’s loss reserves by about $500 million.
Even though a federal judge ruled that Greenberg was a conspirator in that case, and even though that scandal led to AIG in 2006 paying what at the time was the biggest settlement ever ($1.6 billion, paid to Eliot Spitzer’s New York state regulators and George W. Bush’s Justice Department and SEC), Greenberg has always denied responsibility, and his bumlicking minions in the financial press like Maria Bartiromo are still protesting his innocence long after everybody on Wall Street forgot about the case (that was nineteen billion-dollar scandals ago!).
Moreover, despite the fact that Greenberg personally settled for $15 million in another fraud case that led to a $2 billion accounting restatement by AIG, he’s never accepted responsibility for any of his actions there, either. In fact, even after he paid the $15 million in that case, and even after AIG restated its balance sheet to the tune of $2 billion, Greenberg went out of his way to say the restatement was mostly “unnecessary” and that he had “no responsibility” for any fraud. That’s just the kind of guy he is.
Why is it necessary to go over all of this ancient history? Because it was these Greenberg-instigated scandals that set in motion the events that led to AIG’s collapse later on. When Greenberg was forced out on the heels of the reinsurance scandal, credit agencies downgraded AIG. This and subsequent downgrades are what eventually sank the firm.
How? Well, AIG, under Greenberg’s watch, had entered into hundreds of billions of dollars of cosmically stupid credit default swap bets with all of the biggest banks in the world, essentially taking book for all of Wall Street, in many cases taking the wrong side of bets against the mortgage markets, among other things. Greenberg was dumb enough to allow his subordinate Joe Cassano to enter into these contracts, which were written in such a way that if AIG’s credit rating were ever to fall, AIG would suddenly owe its customers billions in cash collateral.
When the ratings agencies started downgrading AIG because of anxiety over all of the investigations into the company’s accounting, all of those collateral calls started coming due. Before you knew it, companies like Goldman were demanding more cash in collateral than AIG had, and when the company was finally bled dry, that’s when the bailout took place.