Did Eliot Spitzer Contribute to AIG's Demise?

The New York Sun thinks so in "Bring Back Greenberg":

As America was racing toward the nationalization of what is left of American International Group, we couldn't help think of Eliot Spitzer. Among all his mistakes, it's hard to think of one more catastrophic than his decision to force Maurice "Hank" Greenberg out of the leadership of AIG. The picture since then has not been a pretty one. As Mr. Greenberg put it yesterday in a letter, "In a little over a year, I, and other shareholders, have watched the company that I helped build over 35 years into the largest and most successful insurance company in history and one of the strongest and one of the most profitable companies in the world lose over 90% of its value."

It would have been another matter had Mr. Spitzer — or anyone else — found any wrong-doing by Mr. Greenberg. But they didn't. Instead, Mr. Spitzer's raid on AIG resulted in the installation of new management that, one can say at this point, just wasn't up to the job. As Mr. Greenberg put it in his letter yesterday to AIG's chief executive, Robert Willumstad: "Despite repeated assurances from management and the company that everything was under control, it is now clear that nothing was under control."

Client Number 9 seems to be weathering the financial storm much better than AIG's shareholders:

"When he was attorney general he was on a witch hunt, he'd go after anyone he could to get headlines," said Senate Majority Leader Dean Skelos. "I look at the pattern form when Hank Greenberg went out, not just the crisis now, and the stock plummeted. It cost taxpayers hundreds of millions of dollars in our pension system."

Spitzer, silent since his resignation March 17 after being implicated in a federal prostitution investigation, has also been blamed for contributing to a state budget crisis this year. Now, Spitzer is working for his millionaire father in Manhattan real estate while the prostitution probe continues. It was just two years ago he carried a historic margin of victory over Republican John Faso.

As news commentators have noted, maybe AIG would have capsized even with Greenberg at the helm. Some former employees have said that AIG was doing credit swaps while Greenberg was still around. But his removal certainly doesn't seem to have helped. In retrospect it seems like a major mistake to have driven Greenberg from AIG. But it is not just in retrospect--Spitzer's obsession with this case at the time was roundly criticized (he went after Greenberg for issues unrelated to AIG and it has been reported that he strong-armed AIG to throw Greenberg under the bus even though he couldn't prove anything).


Did Eliot Spitzer Contribute to AIG's Demise? ...

...maybe AIG would have capsized even with Greenberg at the helm. Some former employees have said that AIG was doing credit swaps while Greenberg was still around.

That's a definite, Who knows?
9.18.2008 5:08pm
Anderson (mail):
So, the Sun has proved that the Wall Street crunch is a *Democrat's* fault.

Quod erat demonstrandum.

It was especially insidious of Spitzer, not only to oust Greenberg, but to require AIG to replace him with idiots.
9.18.2008 5:15pm
Of course in all of his genius, Greenberg is 100% sure the same thing could never have happened to him. And it's 100% because he's a genius and the new management are clutz, not due to random chance, the delayed effect of Greenberg actions, or circumstance.

The people in the article don't appear to have a very firm grasp of the concepts of correlation and causation.

I mean, it's possible. Maybe even likely. But the tone of certainty is ridiculous.
9.18.2008 5:21pm
I work on Wall Street, and the clear majority view is that Greenberg is largely responsible for the mess at AIG. In fact, people generally found it laughable when he started offering to help with the current situation - sort of like "thanks, but you've done enough already."

That's completely separate, of course, from the issue of whether Spitzer was unfair to him. Maybe he was. But the notion that AIG would be just fine if only Greenberg had remained at the helm seems pretty silly.
9.18.2008 5:23pm
A. Zarkov (mail):
Perhaps Greenberg had access to a better class of women, and that's what pissed off Spitzer.
9.18.2008 5:29pm
tommears (mail):
It seems more likely that Mr. Greenberg created a house of cards and this is the inevitable collapse than anything that was done recently. The problematic financial positions, illiquid/hard to value investments, and outright shady deals that are causing AIGs problems this week would have taken years to put in place—not months. Maybe Mr. Greenberg feels he was a better juggler; he could have kept everything together long enough for the external crisis to pass.
9.18.2008 5:54pm
Justin (mail):
Wow, TZ is just on fire! AIG collapsed because of the actions it took in the last year, not the investment and insurance decisions it made before then? Really?

Also, given the likelihood that many of the practices Spitzer attempted to crack down on were major causes of AIG's collapse, this attack on Spitzer seems more personal animosity + conform worldview than serious thought.
9.18.2008 6:13pm
Everyone know the Community Reinvestment Act forced AIG to take on all those credit default swaps.
9.18.2008 6:47pm

It was especially insidious of Spitzer, not only to oust Greenberg, but to require AIG to replace him with idiots.

I think the claim was actually that Spitzer didn't care. His personal dislike of Greenberg was so great that he wanted to have him thrown out at any cost, and couldn't be bothered to care who replaced him.

I've heard opinions both ways on Greenberg, that he was an angel or a demon, and I don't honestly know which is true. It's possible he was doing questionable things behind the scenes, but it's also possible that he was one of those people who actually could have managed it (and it's also important to remember that it wasn't just Greenberg who left AIG, more than a few really good people walked out the door with him then).

Spitzer, on the other hand, has shown himself to be someone who had no problems taking his personal vendettas into the government and using his office to press those vendettas. I suppose some prefer the devil you know, but I'd prefer having Greenberg in the seat if there was even a chance he could have kept things going.
9.18.2008 6:48pm
Mark Field (mail):
9.18.2008 7:15pm
Dr. T (mail) (www):
I agree that Spitzer acted inappropriately in the case of AIG. However, the economic commentary I've seen indicates that AIG's problems go back much more than one year. AIG offered cut-rate insurance to banks and other financial institutions who had high-risk loans and investments. When those institutions got in trouble, AIG got in big trouble.

I don't blame Greenspan for AIG's woes, either. Greenspan's actions set the stage for catastrophes, but the individual actors could have exited stage left to avoid the upcoming mess.
9.18.2008 8:48pm
byomtov (mail):
Weel, if the New York Sun says Greenberg would have prevented all this it must be true. Especially since Greenberg himself agrees.

Wow. Zywicki is allowed to teach?
9.18.2008 8:49pm
J Richardson:
I don't know whether Hank Greenberg could have prevented the debacle that Martin Sullivan/Robert Willumstad presided over or not. I do know he was reputed to be a real SOB. I also know he knew more about how AIG worked than anyone else because he put the damn thing together after Cornelius Vander Starr died. He had a better chance to prevent this from happening than anyone else around.

So yes, I do think that pond-scum sucking, whore-hopping, lowlife Spitzer does bear some responsibility for what happened to AIG.

And if I sound pissed off it is because I work for an insurance subsidiary of AIG and have had to spend the last 4 days explaining the difference between a regulated insurance company and the unregulated holding company.
9.18.2008 11:34pm
"And if I sound pissed off it is because I work for an insurance subsidiary of AIG and have had to spend the last 4 days explaining the difference between a regulated insurance company and the unregulated holding company."

Poor you. Maybe if your industry had a few less greedy crooks, you wouldn't have to be so put upon with these questions.
9.19.2008 12:26am
Crime underwriter:
One thing that Hank did well was to sell off risk to others. I am pretty sure if he were at the helm the riskier holdings would have been dispensed with.
9.19.2008 1:27am
Tony Tutins (mail):
I heard Lucy Komisar on the radio today describing some of the shenanigans AIG pulled off while Greenberg headed it. Having the taxpayers bail them out is quite ironic, because for years, supposedly, AIG took profits offshore to avoid paying US income tax.
9.19.2008 1:37am
Moneyrunner43 (www):
TruthInAdvertizing is an excellent example of the ignorance that pervades the public's understanding of what is happening to the financial markets. Explaining it all by referring to greedy crooks. But there is some truth to his accusation. The problem is that he's pointing the blame in the wrong direction.

Question: What started this mess?

Answer: The housing "bubble" burst.

Question: How did that cause this problem?

Answer: Most mortgages are bundled and sold as fixed income securities (bonds). Once default rates went through the roof and housing values fell, the value of these bonds could not be determined.

Question: Why is that a problem?

Answer: When the value of a bond is unknown, no one wants to buy it.

Question: Why is that a problem?

Answer: Because a bond that you can't get a bid on is pretty much worthless as an asset.

Question: And why is that a problem?

Answer: Because most financial firms are required to "mark to market" what they own. And a security that you can't get other people to buy is valued at zero.

Question: Can't you take an educated guess?

Answer: That's what most firms are doing, but a guess is just a guess, not anything more precise. And if you are dealing with a firm that could be worth billions or could be billions in the hole, would you give them a loan? No. I didn't think so. Ergo, there goes Lehman Brothers and Bear Stearns.

Question: And who began this mess?

Answer: Who are the world's biggest bundlers and sellers of mortgage backed securities? Fannie Mae and Freddie Mac. They set the standards for mortgages. They relaxed lending standards to help the "poor" obtain home ownership. They hired lobbyists and gave millions to every politico who would take it to prevent a crackdown on their lending practices and the amount of leverage they were using. They went to incredible leverage levels to make their earnings numbers so that their politically appointed leaders could collect millions and hundreds of millions in salary and bonus.

Fannie and Freddy were the underwater earthquake that's now creating this financial tsunami because the mortgage backed securities market involves trillions of dollars spread throughout the globe. History will show that a relatively few Democrat political hacks looking to line their own pockets may have cause the most massive financial panic in history.
9.19.2008 8:24am
Robert Arvanitis:
Spitzer did not believe in God, but he did God's work in ousting Greenberg.

Greenberg cheated his way to the top, abusing reinsurers and regulators alike, scamming the accounting, using "earnings banks" and "finite insurance" to smooth reporting income.

A decade ago, he hired Petros Sabatakakis from Citi, as chief credit officer. Petros quit in disgust shortly thereafter. Even with MRG's support, he couldn't rein in AIG Financial Products and all the other foolish risk-takers. Having gotten to the top in traditional insurance, it was inevitable that AIG would chase revenue in capital markets. As inevitable as the eventual crash.
9.19.2008 10:24am
Bill Twist:
Robert Arvanitis:
Spitzer did not believe in God, but he did God's work in ousting Greenberg.

Then why, with all the resources available to the Attorney General of the State of New York, was Spitzer never able to actually charge him with anything.

I don't know about you, but there is *NOTHING* that scares me more than a prosecutor who will stop at nothing to destroy a person. Did we not learn anything from the Nifong incident? Spitzer was Nifong writ large, and unfortunately he was able to fool enough people for long enough to get elected governor. Once he was in office, though, his bullying and abuse of power resulted in one of the lowest approval ratings of any NY governor, long before the prostitution scandal. Even if that hadn't happened, Spitzer was destined to be a one term wonder.
9.19.2008 10:44am
Justin (mail):
Moneyrunner43, you had me until "who began this mess," in which your argument was hopelessly nearsighted. Fannie and freddie weren't the only people with questionable lending practices by ANY means.
9.19.2008 10:49am
Webrider (mail):
This debacle is nothing more than Democratic Party cronyism. The names of the perps are in the papers all the time, being lionized for being "fair" to the "poor and disadvantaged", while raking in money and political contributions from the real crooks. It began with Jimmy Carter's misguided "fair housing", continued when Bill Clinton forced out the people running Fanny Mae and Freddie Mac and installed his favorites (nothing more egregious than Jamie Gorelick, isn't it odd how often she shows up in major American disasters?) President Bush and later, John McCain actually tried to do something about this with strengthened rules and a new oversight group when it became clear that the Democrats in Congress were abdicating their oversight responsiblilities. Dodd and Barney Frank are the two most repugnant of these, with Biden closely following with his disgusting credit/bankruptcy law favoring his biggest supporters, banks! Most "ethical" congress ever? We need to vote against every incumbent in congress this year and for next four years in Senate.
9.19.2008 1:05pm
J Richardson:

Poor you. Maybe if your industry had a few less greedy crooks, you wouldn't have to be so put upon with these questions.

If "TruthInAdvertising" is trying to imply that I am a crook then it is a damn shame that duels have been outlawed. It is one Southern tradition I would be happy to help reinstitute.
9.19.2008 7:09pm
Michael Rose (mail):
The Greenberg's were manipulating the insurance industry and taking advantage of clients. What else would you expect if the father and two son's are running three of the largest insurance companies in the world ( Marice -AIG, Jeff - Marsh and Mcclenan, Evan -Ace), can you imagine Sunday dinner discussions? Not to mention Greenberg's history with various international clandestine operations, see link on his background. Here is a video that should be of interest for those who really care. Stop blaming Spitzer!!,Maurice.shtml
9.20.2008 1:21pm
Moneyrunner43 (www):

Stop blaming Spitzer!!

Are you the teen on that stupid YouTube video?
By the way, Conspirators, you have a friend here in Michael Rose who points us to a website that fearessly exposes

There's actually a lot of money to be made blowing up banks. Here's how Bush Sr. and his friends in the Mafia and CIA profited from it the last time

I kid you not. And this:

In the China trade, Greenberg became very close to Shaul Eisenberg, the leader of the Asian section of the Israeli intelligence service Mossad, and agent for the sales of sophisticated military equipment to the Chinese military. From 1988 to 1995, Greenberg was a director of the New York Federal Reserve bank - this branch of the system is the main instrument through which Federal Reserve chiefs and the Bank of England traditionally execute their U.S. political-economic policy.

Rose is a perfect addition to this blog. The only thing he did not throw in was the Bilderbergers.
9.20.2008 3:04pm
Moneyrunner43 (www):

The difference between you and me is that I actually understand many of the financial instruments involved in this debacle.

Try to keep up.
9.20.2008 3:06pm