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December 9, 2008
AIG: Viva the Taxpayers!

"Nobody knows anything," wrote William Goldman in Adventures in the Screen Trade. That's particularly true for the insurance industry, which is afflicted by an assortment of dunderwhelps, jobberknowles, ginks and hypomaniacs who have managed to ascend to the role of CEO.

Hank Greenberg, the former honcho of American International Group Inc., was for decades the smartest man in the insurance business. But hubris and an inability to see that his era had passed did him in. Now he shows up on Charlie Rose seeking a government handout.

Hank has been powerful and wealthy for a long, long time. And years of flying on private jets have made him deeply out of touch with ordinary life. When asked by Charlie Rose how much his AIG stock was once worth, the sinewy octogenarian answered "$2.5 billion."

"And now?" Rose asked.

Hank paused for a few moments, perhaps taking in the enormity of AIG's decline. "It's virtually worthless," he said. "About $100 million."

Hank's stock is worth less than that now, but he still lives on Fifth Avenue, has several other residences and travels in style. Nonetheless, he's been blabbering away on TV and op-eds about why AIG's shareholders — including himself — deserve a handout from the government.

Over the years, Hank got used to getting his way. But in the last three years, the former billionaire has lost his company, most of his power and most of his money. He used to be a bigshot who controlled a trillion dollars in assets. Now he's just another multimillionaire in New York.

But he seems to see himself as a victim.

Let's get one thing straight. In September, the federal government saved AIG from a sure bankruptcy and has, to date, come through with a $150 billion rescue package for the company. Were it not for this, Hank's AIG stock would have no value.

But is Hank grateful?


In a Dec. 2 op-ed in The Wall Street Journal, the former titan blames the Feds for his drastically reduced financial circumstances. "The government … pushed for a punitive program for American International Group (AIG) that benefits only the company's credit default swap counterparties," he gripes.

That is simply not true. All AIG stakeholders benefited from the government's actions. And it is axiomatic that creditors, who are in a senior position, must generally be made whole before the shareholders get anything.

Hank's beef, it seems, is that Citigroup Inc. — a smaller beneficiary of government largesse — got a better deal than AIG. He objects to the fact that the taxpayers — who saved AIG — received 80% of AIG's stock in return for pumping in the billions that saved the company.

Hank, apparently, wants the government to virtually give the money to AIG.

"More needs to be done to save AIG," he writes. "A new plan needs to be drawn up to allow private capital to replace the government's capital. And the company itself cannot be so burdened with interest payments that it is forced into effective liquidation."

Hank, who will turn 84 in several months, is daft — or just blowing smoke. No "private capital" would give AIG terms anywhere near as good as it has gotten from the government. In fact, no private capital in any meaningful amount is even available for AIG. But this doesn't stop Hank from implying that the government is "forc[ing]" AIG "out of business."

But consistency isn't Hank's long suit. Self-interest is. And he has no qualms about speaking out of both sides of his mouth. A few months ago, Hank, who was forced out of AIG in 2005, said that when he left the company, it was in swell shape. He also said he didn't know what had gone on at AIG since his departure because he hadn't been there and hadn't seen the books. Curiously, that didn't prevent him from then opining that AIG was "sound" and just needed some financing to tide it over. He said AIG's problems were a "liquidity issue," not a "solvency issue."

Of course, he didn't have the slightest idea what he was talking about, nor did he have any understanding of the financial implosion that AIG was experiencing. Had he understood what a mess the company was in, he would have sold all his stock when it was 40 times higher than it is now.

There's no doubt that Hank was a brilliant manager in his day, and he had a long, illustrious career. But somewhere along the way, he overplayed his hand. Beginning in 1996, when Hank was in his early seventies, Schiff's Insurance Observer wrote numerous critiques of the company, shining a light on aggressive (or phony) accounting, dubious acquisitions, poor corporate governance practices, unethical distortions of earnings, sleazy hyping of the company's stock and the increasing assumption of financial risk. (

Hank has railed against AIG's directors who, when their backs were to the wall, didn't have the courage to keep him on. But they were a compliant bunch of well-paid hacks all along, hand-picked by him for their political connections and pliability, not for their independence or interest in seeking the truth.

So Hank now asserts that the government should bestow riches to AIG's shareholders because AIG is a "national treasure."

If AIG is a national treasure, then so are General Motors, Lehman Brothers and Enron. So is every homeowner who's underwater on his subprime mortgage.

AIG took massive financial gambles that ultimately brought it down. The government was right to step in and stabilize the situation so that the financial system remained functional and creditors and policyholders were protected. The government saved AIG by injecting unprecedented amounts of capital on sweeter terms than any other entity in the world would have offered. If the government's equity in AIG ends up being worth anything, the taxpayers may make plenty of money. Good. They deserve it for the risk they're taking.

AIG's Annual Audit Fees ($M)

2001            27.0

2002            39.5

2003            44.8

2004            77.7

2005            78.8

2006            108.7

2007            119.5