It doesn’t take long in talking with former AIG Chairman Hank Greenberg to realize he’s Exhibit A for the proposition that they don’t make them like him anymore.
It’s not only the milestones on his life path, which include as a young man hitting the beaches of Normandy on D-Day and service in the Korean War. He earned a Bronze Star.
Can’t doubt his business acumen, either. Greenberg built the world’s largest insurance company, taking it public in 1970 with a market value of $300 million and creating in the decades following a $180 billion masterpiece with operations, subsidiaries and spinoffs operating in 130 countries. Imagine GM with 80 percent of the world auto market and you begin to grasp what AIG was at its height.
Along the way, he rubbed elbows with every significant prince, politician and potentate you can think of since LBJ was president. So smart people from around the world listen, carefully, to Greenberg.
This respect was evident during a recent private dinner in which he confidently responded for more than an hour to prickly questions posed by the high and mighty like China’s ambassador and the low and mean represented by a gaggle of scribes who cover Wall Street and the economy.
What Greenberg most wanted to discuss, though, was one number and how it came about, the 79.9 percent ownership piece of AIG Uncle Sam ended up with as the smoke cleared from the economic meltdown of 2008.
“AIG was loaned $85 billion at first, at 14.5 percent interest. If anybody charged that interest, and those are serious terms, they have prisons for people like that,” Greenberg said. “And the Fed took 79.9 percent of the company. I don’t know of anybody that issued an opinion on the 79.9 percent, why they were entitled to 79.9 percent, as far as I know it was just a done deal.”
Also fascinating Greenberg is what happened to that $85 billion. At least $62 billion of it went out the back door at AIG, he said, “given to counterparties as collateral. And at what terms? Was it 40 cents on the dollar? Or 80? Or 90?”
Good questions, especially considering what Greenberg calls the other “pieces of the puzzle” of what happened before the smoke cleared from the meltdown. Then-Treasury Secretary Hank Paulson and New York Fed Chairman Tim Geithner threw hundreds of billions of tax dollars at Wall Street, allegedly to avoid the imminent collapse of the economy. Has so much money ever before been given away by public officials in this country with as little accountability?
“On day one, there were $700 billion that were going to buy toxic assets out of banks, but before you can even blink that was discarded, and capital was injected into the banks, and some whether they wanted it or not,” Greenberg said. Confusion followed about what exactly was being done, by and for whom, and why.
A key element here, Greenberg contends, was a 2005 decision by an obscure financial industry group, the International Swaps and Derivatives Association. Briefly, ISDA changed the rule on credit default swaps to require investment backers like AIG to pay off declines in value as they accumulated rather than, as before, at the end of their terms.
The result was absolutely devastating for AIG, which had invested heavily after Greenberg’s departure in 2005 in CDSs backed by subprime mortgages and sold by, among others, Goldman Sachs, of which Paulson and Geithner were both alums.
When the real estate bubble burst in 2008 and AIG couldn’t make good on its CDS investments, Paulson and Geithner used rescuing AIG to launder billions of dollars into their old firm to rescue it from its subprime securities folly. Put another way, they used the U.S. Treasury to make good on Goldman Sachs’ shorting of its own bad investments.
This has the makings of a scandal to dwarf Teapot Dome and Enron. But to get to it, the great disinfectant of sunlight must be focused on how government officials arrived at that 79.9 percent figure.
For now, Greenberg relies on investigative reporters. He’s also calling for a congressional investigation. If all else fails, he won’t rule out lawsuits and the discovery process. That could get very ugly.
I wouldn’t bet against Greenberg having the last word here.
Mark Tapscott is editorial page editor of The Washington Examiner and proprietor of Tapscott’s Copy Desk blog on washingtonexaminer.com.
