I have just finished reading both Hank Greenberg's The AIG Story, and Ron Shelp's Fallen Giant. Both books are required reading for anyone who has an open mind, wants to see both sides of a very troublesome and costly period in the economic history of the US. Most accounts in the press over the years since the resignation of Hank Greenberg as CEO of AIG in 2005, focus on alleged wrongdoings of Greenberg and of AIG after he left. The economic crisis beginning in 2007, arguably triggered by the government and the FED attempting to boost economic growth by driving interest rates down and thus stimulating home purchases and home building to "bubble" proportions, ultimately brought AIG almost to ruin. After Greenberg left, it turns out, the Financial Products (FP) unit was allowed to loosen its underwriting criteria and size limits, foregoing hedging in many cases, and participated in credit derivative swaps involving securitized tranches of sub-prime mortgages, which were the instruments first and of greatest proportion to fail. The creation of such instruments was not AIG's role--that was Goldman Sachs and other investment bankers, but AIG did back them financially.
I had the privilege of working as a profit center manager at AIG between 1995 and 1999. I had a good deal of contact with Hank Greenberg, because I managed a new venture and he had the uncanny ability to understand and be deeply involved in dozens of businesses, including mine. I left with great respect for this amazing executive--37 years at the helm of a business which grew to be the largest insurance company in the world, combining a demand for performance, along with an almost forgotten loyalty to old timers, whether they be elevator operators or executives. Many officers and employees deserve credit, as he often points out, but none remotely as much as he does.
So, I hope many will read these two books and understand that what happened was tragic. I join the few who feel certain the problems of 2007 and beyond would not have developed if he had not been ousted, and that his ouster was entirely inappropriate--a political campaign by an overzealous public officer (Eliot Spitzer) who, along with others later, cost the shareholders and the American public a very great deal. I feel confident that if any of our top 100 financial services companies had a zealous independent audit of the last 10 years of books, they would certainly find a number of "foot faults" of equal or greater impact than the small ones which were used to push Greenberg out. And, I believe we had alternatives in the resolution of the FP portfolio risks developed after his resignation, that cozy government relationships with investment banks like Goldman Sachs precluded--and this cost shareholders inappropriately.
I hold with the conclusions in this book--until I see documented evidence to disprove the egregious behavior of government officials so clearly laid out here.
This is a story, largely, of our government at fault.
That the rancorous New York State Attorney General, Eliot Spitzer, fuelled with zealous ambition to become State Governor, and perhaps beyond, was able to conduct a wholly unwarranted, unsustainable, and frankly spiteful assault on Mr Greenberg, and by implication his companies, is indeed the ultimate manifestation of a legal system that is corrupt, out of control and unfit for purpose.
It is natural that the authors would present the facts and explanations in the best possible light, but when the many attempts at bringing Mr Greenfield to justice were adjudicated upon, the Judges always concluded that his evidence was beyond reproach and found in his favour.
Mr Spitzer, violated time and time again the fundamental bedrock of the American legal system, innocence until found guilty by a properly constituted court of law. His many public statements of Mr Greenberg's guilt before trial or even indictment coupled with his regular threats of prosecution aimed at extorting financial settlements, were a shameful episode in American Justice. It was a pity that Spitzer did not conduct his own life with the same propriety as he expected of others, as his subsequent 'outing' for prostitution dalliances evidenced.
The first part of the book gives a concise, easy to read, interesting account of Mr Greenberg's career, particularly his rise to the top of what became AIG. It is evident that he conducts his business affairs in an orderly, pragmatic way, and seemingly with the highest standards of ethical and humanitarian considerations.
The second part of the book carefully chronicles the attempt by Mr Spitzer to ruin at any cost Hank Greenberg and by knock on AIG and the successful spirited rejection mounted by Greenberg. Whilst successful it did, however come at a huge drain in terms of cost, resources and distraction from ongoing business issues.
Until Mr Greenberg was forced out of AIG by Spitzer and a weak, compliant board, he kept his usual tight controls over risk taking including the Financial Products division, insisting that each transaction was matched with an equal and opposite hedge, whilst reducing the potential upside gain, meant that there could be no losses. The authors make the point that after his departure, the board, in order to ramp up their poor underwriting controls across the various companies and spiralling costs, allowed FP to accept a massive amount of risks without hedging each transaction, initially bringing in higher margins, but was the main reason for AIG's eventual demise when this class of business came badly unstuck. So, therefore Mr Spitzer not only got rid of Mr Greenberg but he, also deprived AIG of the one person who would have probably seen that there was no debacle in FP causing the virtual collapse of the largest insurance group in the world. It would have also saved the US Taxpayer $100's billions!
That an out of control, vindictive, ambitious, purported law enforcer was able to almost destroy the career and reputation of one of the world's eminent business leaders, and charitable bestower, is an awful arraignment of the way the American legal system has been allowed to go disastrously off the rails.
Although two co-authors are identified, Maurice R. ("Hank") Greenberg provides what would normally be (or at least be viewed as) memoir material for which Lawrence A. Cunningham then created a context, a frame-of-reference, that draws upon Greenberg's contributions, of course, but also those from dozens of other soyrces. Cunningham seems to have made every possible effort to remain objective. He devised the structure, conducted countless interviews, and drafted the story's narrative. The book is research-driven (check out the "Notes," Pages 265-308) and, as Cunningham notes, "told in the third person. But it is very much Greenberg's story and a personal one at that." I view Cunningham's role primarily as that of a research scholar who "sets the table" with a wealth of historical material in combination with personal accounts provided by Greenberg, of course, but also from other knowledgeable sources, identified within 43 pages of annotated notes.
The focus of the narrative is on the evolution of Greenberg's career from 1952 (at age 27) after returning from service as an officer in the U.S. Army until 2011 when he has embarked on new adventures in the vineyards of free enterprise, building (rebuilding?) C.V. Starr & Company and Starr International Company (SICO) together with several subsidiaries that pre-date AIG. Appropriately, the focus of most of the book is on Greenberg's years at American International Group (AIG), especially during the last decade when internal power plays led to his forced retirement. Also in the same year (2005), then New York Attorney General, Eliot Spitzer made heavily-publicized allegations concerning accounting improprieties. However, revealingly, no criminal charges were ever brought and most of the civil charges were dropped.
Had there been an opportunity, I would have liked to meet with Greenberg and ask him a number of questions that would help me understand what interests me most about his life and career:
o Why he went to work for AIG's founder, Cornelius Vander Starr, as the head of AIG's failing North American holdings. 0 Why he achieved so much success that after several promotions, Starr named him as his successor o His relationships with other senior-level executives at AIG, many of them rivals o Why he created AIG (e.g. specific objectives, strategies, and resource allocation) o How he explains AIG's unsurpassed success in terms of market dominance, product development, sales, and profits o The most significant differences between AIG and its major competitors o The proper role of the federal government and, especially, its regulatory agencies o Indications (i.e. "early-warning signs") of problems with at least some board members o Indications (i.e. "early-warning signs") of problems with at least some C-level executives at AIG o AG Spitzer's motives and how he (Greenberg) explains them o The nature and extent of AIG's financial problems at the time of Greenberg's "retirement" o Over the years, the best and worse of AIG's relationship with the federal government o What he knew in 2005 that he wished he knew when Starr named him his successor in 1968 o The most valuable business lessons he has learned during the last 50 years o The extent to which he expects those lessons to help him and his associates achieve the goals they have now
The "story" provided in this volume either provides all the information I hoped to have or at least, no small achievement, has enabled me to formulate reasonable assumptions and (yes) a few tentative conclusions about much of what has and hasn't happened in Maurice R. ("Hank") Greenberg's life and career thus far. Lawrence Cunningham acknowledges that at least some questions remain unanswered or only partially answered, as they always do. He tells a compelling story whose complexity defies pure objectivity but, thanks to his rigorous and meticulous stewardship, a story that probably comes about as close as one could to explaining what really happened.
A great reading on enterpreneurship, entusiasm and ethic attitude in doing business by such long term visionary men as CV Starr and Maurice Greenberg. The second part of the book shows what really was behind the crisis which almoust destroyed AIG and the role of new short term managers who betrayed the AIG's original solid risk-management fundamentals.