Ex-AIG chief says government bailout bid will fail
(RAW STORY) The former head of AIG said Thursday he was not to blame for the collapse of the insurance giant and declared that government-backed plans to rescue the firm would fail.
“All plans so far advanced by the US government to date have failed and the current plan, in my opinion, will not succeed,” Maurice “Hank” Greenberg told a congressional hearing.
Greenberg, 83, presided over American International Group for nearly four decades before he was forced out in 2005, about two years before financial turmoil erupted stemming from a home mortgage meltdown that wreaked havoc across the globe.
The government had pumped 180 billion dollars so far into AIG to keep it afloat, the largest single recipient of federal bailout money.
Greenberg claimed “major mistakes have been made” in the bailout plans.
He said the government imposed “unrealistic financing terms” on AIG, including slapping about 14 percent interest for the first year of the bailout funds — “charging interest whether AIG actually drew down funds or not.
“That was not only different from those that were imposed on any other company, but which fundamentally undermined AIG’s continued viability,” he said.
The government also obtained most of the equity in the company and moved to sell off key assets.
Greenberg claimed the government used AIG “to funnel money to other institutions, including foreign banks” that required the company to put up collateral after losing its coveted AAA credit rating.
“It advanced billions of dollars of taxpayer money to AIG instead of pursuing the opportunity to raise private capital in conjunction with providing government guarantees that would have eliminated the necessity of putting up additional cash collateral,” he said.
Greenberg felt the government should “create conditions that allow AIG to repay the taxpayer” by rebuilding the company, saying this “is the best way of doing that.”
He also said that the government should “wall off” AIG Financial Products division, which was responsible for backing risky financial transactions that led to the company’s downfall, from the rest of the group.
The government should then replace as many loans as possible with guarantees and extend what remains of existing loans for 20 years at possibly low interest rates, he said.
This could reduce the government’s ownership in the company to 15 percent common equity to allow private capital to be raised over time, he said.
“The current approach of announcing the sale of insurance subsidiaries simply results in people seeking employment elsewhere and taking business with them,” he said.
Greenberg blamed AIG’s current management for the current mess.
“AIG’s business model did not fail. Its management did.”
He said that the Financial Products division was subject to numerous risk controls during his watch and conducted business largely on a hedged basis.
“Massive losses at AIG-FP in 2007 and 2008 resulted significantly from a shift in the way the unit did business after I left the company in the spring of 2004,” he said.