I Apologize Hank. Please Come Back!
Saturday, March 7, 2009 | 2
EDITORIAL
by
David J. DePaolo
by
David J. DePaolo
"No one was responsible for the whole company. There was no umbrella regulator over the whole company, and there was a piece of the company – Financial Products – that really wasn't being supervised or regulated by anybody," Federal Reserve Vice Chairman Donald Kohn told the U.S. Senate Banking, Housing and Urban Affairs Committee on Thursday March 5 in hearings called by the committee regarding AIG's dismal state of affairs.
Indeed, AIG has been a Titanic crashing into icebergs and taking on water since its captain was forcefully thrown overboard back in 2006.
In the past I had been hugely critical of former AIG CEO and Chairman Maurice "Hank" Greenberg. At the time I felt justified in my criticism. After all, it was Greenberg who was at the helm, and had his hands soiled, in the company's use of a wholly controlled reinsurance company to off-load a half billion dollars of risk (such a pittance in retrospect!) to artificially inflate earnings (called "risk loss transfer contracts"). And it was Greenberg who oversaw the company's misreporting of workers' compensation premiums written thus shorting state guarantee funds.
Greenberg was notorious as a ruthless, greedy businessman whose heavy-handed management style and "slash and burn" market tactics earned him, variously, front page god-like status on Fortune Magazine covers and despised villain status in news media around the world following then New York Attorney General Elliot Spitzer's criminal indictment of the company.
In my view back then, Greeenberg was a villain who had almost single handedly defiled our sacred workers' compensation industry with legally questionable, and certainly morally indefensible, business tactics.
And now, in retrospect, I sit at my keyboard humbled, corrected, and even apologetic.
Would Hank have let AIG go tumbling into the abyss of government takeover? Would Hank have even admitted that there was a problem, let alone allowed the world to know that his company was in dire straits? Would Hank have allowed his executives to take his company so far down the credit default swap contract hell hole without exercising capital punishment-like discipline? Would Hank have allowed the fire-sale government bailout of his company?
To each of these questions there is but one obvious answer: "Hell no."
My sense of social liberalism was offended when I read the Wall Street Journal's publication of Assistant Editor James Freeman's defense of Greenberg in 2008, calling Spitzer's pursuit of Greenberg "prosecutorial excess."
But looking at the mockery AIG management has made of the company, looking at the impact the failure of AIG has had on the world wide financial market, and looking at the debacle we refer to as an "economy" I see that Freeman was correct when he taunted Spitzer and lieutenants for ruining a company, its managers and shareholders in pursuit of phantom fraud.
Let me be perfectly clear - I fully despise Greenberg much as most citizens of the free world despised Sadam Hussein. But like the demise of a brutally ruthless dictator in a culture that can not maintain civility without cold blooded, heavy-handed disciplinary tactics, once Greenberg was removed from power AIG spun into financial, if not cultural, chaos.
Greenberg would not have let credit default swap contracts take the company down. Greenberg would have found some way to off load that toxic waste. Greenberg would not have sold the company to the US Government - hell, Greenberg would not have even let US regulators even get close to the company! Greenberg's monster ego and ferocious greed would have kept the company alive, would have beheaded miscreant managers, and the world-wide economy would have one less multi-billion dollar bailout headache.
So Hank, I apologize for everything bad I have said about you in the past. Would you please come back to work for us?
Post script 3/17/2009: Referencing March 2005, Wall Street Journal opinion editor states, "The housing trouble began as most of AIG's troubles did when the company's board buckled under pressure from then New York Attorney General Eliot Spitzer when it fired longtime CEO Hank Greenberg. Almost immediately, Fitch took away the company's triple-A credit rating, which allowed it to borrow at chaper rates. AIG subsequently announced an earnings restatement. ... The restatement triggered more credit ratings downgrades. Mr. Greenberg's successors seemed to understand that the game had changed.... But rather than managing risks even more carefully, they went in the opposite direction. Tragically, they did what Mr. Greenberg's AIG never did bet big on housing." Wall Street Journal, March 17, 2009 Opinion, "The Real AIG Outrage.
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David J. DePaolo is the president and CEO of WorkCompCentral.
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