2009 0402 - GOV (House) - The Collapse and Federal Rescue of AIG, and What it Means for the U.S., Hank Greenberg - AIG - Edolphus Towns (D-NY)
- 2009 0402 - GOV (House) - The Collapse and Federal Rescue of AIG, and What it Means for the U.S., Hank Greenberg - AIG - Edolphus Towns (D-NY) --- [BonkNote]
- Hank Greenberg, Former AIG CEO
- (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) - 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.