It’s time for Washington to throw a high fastball behind Maurice “Hank” Greenberg’s left ear. And I’ll explain how.
It came out this week that Greenberg pitched American International Group’s board on the idea of joining him in a $25 billion lawsuit against the US government and the very taxpayers who bailed out the company in 2008.
Yesterday afternoon, AIG’s board wisely — and quickly — said no thanks. But Greenberg’s nerve has to be applauded. Then he needs to be squashed.
Greenberg, who ran AIG for decades, still has a major stake in the company. His wealth would have taken quite a hit if Washington had not intervened when AIG was on the canvas.
Greenberg thinks Washington drove too hard a bargain when it gave AIG $182 billion in exchange for what became a 92 percent stake in the company. So the 87-year-old Greenberg sued in 2011 on behalf of all shareholders — meaning he didn’t want to look too greedy, so he made it a class-action lawsuit.
And this week he asked AIG’s board to join him.
Any AIG director with a sense of justice, fair play and even a smidgen of conscience — not to mention a desire to avoid bad publicity — would have told Greenberg to take a hike. But he did put the company in a difficult position because the board has what is called a “fiduciary responsibility” to its shareholders.
In other words, the board should have felt obliged to get a piece of any judgment Greenberg might win against We The Taxpayers, or it could be sued by shareholders.
AIG got into financial trouble the same way other companies did. It made bad investments — in this case, in mortgage-backed securities that were insured by AIG through credit default swaps. Ordinarily, when a person or a company makes a bad investment, people say, “ah, that’s tough,” and go about their own business.
But AIG was a special case — as all the too-big-to-fail politically connected companies of five years ago were — and the government stepped in.
And, in the chaos of 2008, not too many people, including those of us in the press, were asking the difficult questions like, did AIG only make bad investments, or did it do something wrong? Perhaps even something illegal?
I first bumped into AIG in Arkansas, of all places, in the late 1990s. Greenberg was still its powerful head then; he got bounced in 2005.
Back then, I was looking into the financial part of Bill Clinton’s life when the name AIG and its Coral Reinsurance subsidiary came up. Investigators for special prosecutor Ken Starr, who would soon go off on tangents that led them nowhere, had stumbled upon Coral Re’s relations with the Arkansas state government during Clinton’s governorships.
Something called the Arkansas Development Finance Authority, or ADFA for short, had invested in Coral Re, which had been set up by AIG in Barbados for the purpose of taking in some of the company’s policy liabilities. By moving these policies, AIG seemed to be trying to write more policies in the US without increasing its capital. It was finagling. And I wrote a number of columns about this at the time.
Starr’s people didn’t quite know what to make of the deals between ADFA and AIG. But what they did know was that Arkansas state officials, including a Clinton friend named Bob Nash, who ran ADFA, were nervous about them as early as 1992.
Nash had just gotten a note that year from the supervising insurance examiner in Delaware asking about Coral Re.
In the days before e-mail, Nash handwrote to another Clinton buddy, Wooten Epes: “Wooten: 1. Why are they asking about this??!! 2. Were other states involved? If so, which? No other states, any private people? 3. Who was mover and shaker on this? 4. What about issue of state agency not having authority to buy stock?? Legal opinion? Call Me.” (Last line written in darker lettering.)
The New York Times and the Wall Street Journal wrote in 2005 that investigators were looking into AIG’s actions in Barbados and other Caribbean Islands. New York Attorney General E
liot Spitzer also investigated AIG, and that’s when the company sent Greenberg packing.
This is, of course, ancient history that is probably only remembered today by a few ancient columnists. But here’s my point: Before AIG was bailed out in the panicked days of 2008, the cause of the company’s problems should have been looked into.
And if it was determined that AIG had been playing fast and loose with rules concerning the number of insurance policies it could write through the use of shell companies like Coral Re, then the company’s failing in ’08 wasn’t just due to wrong guesses on mortgages.
If I were the attorney representing the government in Greenberg’s case, I would certainly dredge up all of this ancient stuff. I don’t know why AIG’s board decided not to join Greenberg’s effort, but the company’s hidden past would be as good a reason as any.
A company with bodies possibly buried in the basement probably shouldn’t open its doors to hostile lawyers and investigators.