Was the AIG bailout a waste of taxpayer money?
The former CEO of AIG made a few interesting statements when he testified before a Congressional committee a few days ago. Hank Greenberg ran AIG for 35 years until he was forced out in 2005. Mr. Greenberg stated that AIG should have been left to declare chapter 11 bankruptcy. He said that the governments’ attempts to liquidate various divisions of the company, in the current environment, have largely failed.
The aging former CEO also said that a bankruptcy would have saved the taxpayer $180 billion and would not have disrupted the U.S. economy. The governments’ original contentions, and my own conclusion, were that the AIG failure would have a far-reaching effect on the U.S. and world economies.
Was AIG on the right course in the past?
Mr. Greenberg’s contention is that dismantling AIG and selling off the parts at a deep discount does a disservice to American taxpayers. He put the blame for the company’s problems on the current management, not the company’s business model.
The American taxpayer owns 80% of AIG. Hank Greenberg asserts that if the company is properly managed, there is still a chance for the taxpayer to recoup their investment. He said that the company has to separate itself from its financial products division. It has been the Achilles heel of the company.
Throw the baby out with the bathwater
Disgraced former New York Governor and Attorney General Eliot Spitzer waged a fraud investigation against Greenberg, which caused his downfall. The former CEO made a good argument that if he remained at the helm of AIG, the company would have managed risk better.
Greenberg pointed out in testimony that the capitalization of AIG increased 40,000 percent under his watch between 1969 and 2004. Greenberg said that AIG management “wrote as many credit-default swaps on collateralized debt obligations (CDO’s) in the nine months after he left as it had in his last seven years as CEO.” He suggested that this steep increase in risk put the company in its precarious position.
When I worked for a major division of AIG, they were the number one player in their market. That was in the nineties. Maybe the old CEO is right and I am wrong; the bailout was a waste of taxpayer money.
July 1st, 2010 at 6:04 am
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