Atlas Monitor
19 Feb 2014
Former head of AIG, Maurice “Hank” Greenberg blamed Goldman Sachs, JP Morgan and the Securities and Exchange Commission (SEC) for the near collapse of the insurance giant.
Talking to an audience of Yale University students; Greenberg said he was bitter about the events that unfolded during the 2008 Global Financial Crisis (GFC) in which AIG went from the biggest insurance company in the world to effectively being nationalized by the United States government.
Greenberg pointed to the credit default swaps (CDS) that were issued by AIG to Goldman Sachs and JP Morgan as a major factor in the vicissitudes of fortunes experienced by his former company.
He specifically cites the change in the rules governing CDS which stipulated that an investment no longer had to default; rather simply had to lose value before a CDS claim could be made; as well as the difficulty in assigning a real market value to these exotic financial instruments in the absence of an exchange.
He explains “one of the problems was trying to determine what is the value of a CDO? since there was no price discovery because there was no exchange in which you traded the CDOs on. That was, strangely enough during the Clinton administration, the Treasury Department then run by Bob Rubin turned down the request of having an exchange and regulating credit default swaps.”
Greenberg who was no longer with the company at the time of the crisis said he would have handled it differently and would not have settled CDS claims made by Wall Street banks such as Goldman Sachs and JP Morgan.
He also took a swipe at federal regulating agencies for not doing enough and specifically for not having a plan after the collapse of Bear Stearns to deal will the impact of the crisis on the US and wider global economy.
Greenberg lamented “there was six months between Bear Stearns and Lehman Brothers, what did they do during that six months? The government that is, to prepare for any kind of financial upheaval. There was no plan to deal with what was about to descend in the financial markets in the United States”.
He implied that the US Government deliberately drove AIG to the brink of collapse and questioned the decision of the US Federal Reserve Bank to approve bank holding company licenses to both Goldman Sachs and JP Morgan; thereby giving them access to the Federal Reserve’s cheap credit, but denying a holding company license to AIG.
The US government’s subsequent bailout cost US taxpayers 180 billion US dollars; the biggest bailout of any company in US history which gave the US government a 79.9 percent share of the equity of the company; essentially nationalizing it. The US government currently owns 92 percent of AIG according to Greenberg.
Greenberg criticized Wall Street banks for leveraging up to 40 to one using unregulated financial instruments of indeterminable value as well as criticizing the SEC for allowing this to happen.
“Do I feel bitter about it? Yes I do, I feel very bitter about it” said Greenberg commenting on the current state of the company. “I don’t think the real story of what truly occurred in our country has been fully recognized yet” he said.
Greenberg, who participated in the liberation of Dachau at age 17, joined AIG in 1960 and in 1968 was only the second person to head the company; which was founded in Shanghai, China by American Cornelius Vander Starr in 1919 as the American Asiatic Underwriter (AAU).
As American International Group (AIG) it is a transnational corporation with more than 63,000 employees in over 130 countries around the globe.
[youtube http://www.youtube.com/watch?v=V5Sk2l-sW6A?feature=player_detailpage&w=640&h=360]
