Hank Greenberg

  • 2009 0402 - GOV (House - Oversight and Reform) - The Collapse and Federal Rescue of AIG and What It Means for the U.S. - [PDF-87pVIDEO-CSPAN
  • FCIC Interview - mp3
    • <78B?>
    • Securities Lending`
    • AIG - National Treasure <wd>
  • 2013 - Book - The AIG Story, by Hank Greenberg

The AIG Story, by Greenberg

  • (p) - AIG’s AAA credit rating, a rare competitive advantage in corporate America, permitted AIG to provide its customers needed comfort cheaply without having to use costlier sources of security such as posting collateral or pledging assets.
    • Without the AAA rating, however, AIG would have to vouch for its financial strength in those more costly ways. The costs of operating FP absent the AAA rating were so high, Greenberg had always said, that a rating downgrade would prompt withdrawal from the business.
    • But the new AIG seemed unaware of the role that its AAA rating played.
      • Rating agencies stripped AIG of the AAA rating during the second quarter of 2005, thanks to Spitzer’s actions, Greenberg’s departure and new management’s accounting restatement. AIG described resulting risks in a routine regulatory filing, noting adverse effects on FP’s operations and competitive position.16
      • Yet instead of curtailing FP or shutting it down, AIG’s new management dramatically expanded it.17
  • (p232) - Mortgage-related assets began to decline in value. From mid-2007 to late 2008, these problems gathered momentum and spread worldwide. For AIG, the events first produced collateral calls against it in late July 2007 and ultimately drained it of liquidity one year later.
  • (p232) - At the same time, a securities lending program operated by AIG insurance subsidiaries added liquidity pressure.
    • Consistent with industry practice, AIG insurance subsidiaries historically had lent securities to borrowers in exchange for cash collateral, which would be invested in shortterm/low-risk investments to gain a few hundredths of a percent in interest (each hundredth called a “basis point”).
    • After Greenberg left AIG, company employees without proper oversight decided that the goal of these programs was to earn not merely a few basis points but as many as 30, an increase of substantial magnitude that led to making investments in longer-term, riskier assets, including mortgage-backed securities.26
  • (p233) - Inexplicably, senior AIG management and some top FP executives later testified to being unaware, until July 2007, that FP’s contracts required posting collateral based on value declines.
    • Yet the company’s routine regulatory filings, signed by senior managers, specifically disclosed information about the terms of these contracts, including the need to post collateral in certain situations.28
    • Such discord reveals how the dismantling of AIG’s risk management system exposed the company to staggering losses.

2009 0402 - GOV (House - Oversight and Reform) - The Collapse and Federal Rescue of AIG and What It Means for the U.S. - [PDF-87pVIDEO-CSPAN]

  • (p14) - One, wall off AIG Financial Products from the rest of the company and replace as many loans as possible with guarantees.  
  • (p14) - AIG’s business model did not fail, its management did.  
  • (p25) - When they lost the triple A rating after I left the company, that should have been a signal to discontinue writing credit default swaps and hedge the book, because, by their own admission, in their 10-K filings they said that they would be required to put up more collateral.
    • So they knew that, they disclosed that. And having done that, you would have thought that somebody, whether the  president, CEO or the chairman, should have called a halt and said, until we regain a triple A rating, we’re either going to slow down materially or discontinue, because if you have to put up more
      collateral, you got a problem.  
  • (p25) - AIG did not have a solvency problem, it had a liquidity problem.  
  • (p28) - First of all, Mr. Cummings, as far as I know, there are no losses whatever on the credit default swap. That was reported to the Senate Banking Committee last month by the head of the Thrift Administration.
    • It wasn’t losses that brought AIG down, AIG Financial Products, it was a lack of collateral that they had to put up. And the reason they needed more collateral was because they lost their triple A rating. 
  • (p28) - No. 2, because we were triple-A-rated, we did not have to put up collateral. So when AIG lost their triple A rating, and they wrote as much in 9 months as we wrote in 7 years, at a lower-quality business with multisector CDOs, that became a different book of business.  

(p63-64) - Mr. Bill FOSTER - (D-IL). 

  • I have a couple of questions on your securities lending business, which I take it was responsible for a significant fraction of the difficulties.
  • And first off, who owned the securities that were being loaned, which business entity?

Mr. GREENBERG. Probably the life companies.
Mr. FOSTER. The life companies, OK. And so now, and now, who was actually performing the loaning and making the decisions?
Mr. GREENBERG. I think that was done by Win Neuger, the head of investments.
Mr. FOSTER. So this was done individually for each one of the life business units.
Mr. GREENBERG. I think he was the overall head of investments. And who was carrying out that day to day on his instructions, I can’t tell you. I’m not there.
Mr. FOSTER. I’m trying to understand if these were sort of tunnelling through the ring fence that was supposedly around——
Mr. GREENBERG. Normally what happens in security lending, an insurance company, a life company, has a huge amount of assets that’s been invested, securities.

  • A lot of banks and investment banks want to borrow them, say, for 30 days.
  • And they give you cash.
  • And you normally invest the cash in short-term receivables that will earn you 3 to 5 or 6 basis points.
  • Somebody got exuberant and were investing in for 30 base points, as I understand it, and a lot of it had toxic subprime assets involved.
  • And so when the banks wanted back their cash, AIG couldn’t sell the securities at that amount to cover that. And the Fed set up——
    Mr. FOSTER. Could you explain why this wasn’t picked up by the individual insurance regulators?
    Mr. GREENBERG. I don’t know. I wasn’t there.
    Mr. FOSTER. So this you would view as a failure of the individual insurance regulator, the fact that this was allowed to occur?
    Mr. GREENBERG. I would say that’s probably right, unless the amount involved was not considered by the regulator to be of such amount as to impair the solvency of the company.