\n<\/strong><\/span><\/p>\n
Crisis Mismanagement Was the life-and-death crisis at AIG triggered by a false rumor from a New York law firm? That’s one of the many questions raised by Roddy Boyd’s “Fatal Risk,” a vivid portrait of the giant \u00adinsurer at the center of the 2008 financial crisis. The book’s subtitle is “A Cautionary Tale of AIG’s Corporate \u00adSuicide.” Readers may end up wondering whether the corporation jumped\u2014or was pushed.<\/p>\n Although AIG wouldn’t need a bailout until \u00adSeptember 2008, the seeds of its crisis were sown in 2005. That’s when Eliot Spitzer, New York’s attorney general, piggybacked on a federal investigation of \u00adreinsurance transactions and forced the company to fire its longtime chief executive, Hank Greenberg. When Mr. Greenberg stepped down on March 14 of that year, the plan was for him to remain as non-executive \u00adchairman.<\/p>\n But attorneys at Mr. Spitzer’s old law firm\u2014Paul, Weiss, Rifkind, Wharton & \u00adGarrison\u2014soon dropped a bombshell. Representing AIG, they called Mr. Spitzer and told him that Mr. Greenberg’s lawyers were \u00adstealing and \u00addestroying AIG \u00addocuments, Mr. Boyd reports. There \u00adappears to have been no substance to their charges, but Mr. Spitzer quickly demanded that AIG cut all ties with its former boss. \u00adAs The Wall Street Journal reported at the time, Mr. Spitzer told AIG’s directors that, with Mr. \u00adGreenberg still around, “you have serious criminal exposure.” AIG soon barred Mr. Greenberg from its offices.<\/p>\n Even before the Paul, Weiss accusation, Mr. Spitzer was putting intense pressure on AIG’s board, so it is possible that he would have engineered Mr. \u00adGreenberg’s exile even without the claim of evidence destruction. What is certain is that the world’s largest insurer was abruptly separated from the world’s most experienced risk manager at the worst possible moment.<\/p>\n Mr. Boyd doesn’t argue that if Mr. Greenberg had \u00adremained at the helm, AIG would have sailed through the crisis of 2008 unscathed. AIG under Mr. Greenberg was under pressure to continue its remarkable profit growth and was thus taking on more risk in the capital markets; before he was fired, the firm was attracting the attention of short sellers like James Chanos of Kynikos Associates. But readers of “Fatal Risk” will have a hard time believing that Mr. Greenberg wasn’t superior to the AIG management that followed.<\/p>\n Mr. Greenberg had long been obsessed with \u00adaddressing every potential threat to the company. While CEO, he even drew up a plan for AIG to survive a nuclear attack. His outlook may have been shaped by his own experience with catastrophe and risk. Mr. Boyd \u00adreports that Mr. Greenberg was just 5 years old when his father, a cab driver, was killed. While still a teenager, Mr. Greenberg landed at Omaha Beach on D-Day and later witnessed the horror of Dachau. He would lead an infantry platoon in the Korean War, where he earned a Bronze Star.<\/p>\n Of course it was AIG where Mr. Greenberg earned a world-wide reputation, serving as chief executive for almost four decades. Mr. Boyd says that there was one \u00adappointment he never missed\u2014a regular Tuesday meeting that included AIG’s chief financial officer, its general counsel and the leadership of its now infamous financial-products subsidiary. The subject was risk. Once Mr. Greenberg left AIG, the meetings stopped\u2014and so, apparently, did the habit of making risk a matter of abiding concern. Mr. Boyd says that federal investigators, looking into the post-Greenberg AIG, could not find a senior New York-based manager “sending so much as an inquisitive email” to the \u00adfinancial-products group in Connecticut about the \u00adrisk-filled portfolio that would plunge AIG into crisis.<\/p>\n Mr. Greenberg’s successor, Martin Sullivan, knew \u00adinsurance but not much about Wall Street. After \u00adGreenberg lieutenant Ed Matthews briefed the new CEO on the potential pitfalls of financial products, he was surprised that Mr. Sullivan didn’t ask any questions. “On his way out of Sullivan’s office,” Mr. Boyd writes, “Ed Matthews looked down and saw the legal pad \u00adSullivan had made a show of taking out for note-taking purposes. It was completely blank.”<\/p>\n In the months after Mr. Greenberg departed, the \u00adfinancial-products division went on a subprime-mortgage binge. It had largely avoided writing swaps on bonds backed by mortgages during the Greenberg era but quickly entered into tens of billions of dollars of \u00adcontracts that would require AIG to pay the full value of such securities in the event of default. What almost no one at AIG realized was that, even without a default, the company would have to post billions of dollars of collateral if the market price of the bonds declined or if AIG’s own credit rating slipped.<\/p>\n Not everyone at AIG was caught up in the delusions of the housing bubble. Fred Geissinger was the head of an AIG subsidiary that offered mortgages, among other products. But after the “most absurd stories he had ever heard” about people getting mortgage loans from competitors without providing any financial information, he decided to get out of the subprime market. He reported his decision to AIG headquarters, but \u00adapparently no one there thought to follow up on his (impeccable) reasoning.<\/p>\n The rest, as they say, is history. The government would make more than $182 billion available to assist AIG. Today, Uncle Sam owns 92% of the business, though in a few months it is supposed to begin selling its stake. Not even the short-seller Mr. Chanos was able to profit from AIG’s near-collapse. The company didn’t fail quickly enough, and he exited his money-losing short positions in 2007. But he profitably shorted other stocks\u2014Fannie Mae and Freddie Mac.<\/p>\n Of course, major misadventures in real estate can happen outside the U.S., too. The book reports that Mr. Chanos is now shorting China.<\/p>\n Oodles of continuing bad ink on Apple<\/strong><\/span>. From Forbes, Martin T. Sosnoff, writes:<\/p>\n GM is a more viable investment than Apple. I put GM at intrinsic value based on prospective earning power. After long bull run, Apple looks set to fall to earth. Market share for the iPhone and iPad are likely to peak soon and the iPod is in slow decline. Unless it has a major new product, Apple’s days as a growth stock could be over.<\/p>\n Skip to the bottom of the Forbes article and you’ll learn “He (Sosnoff) was a columnist for many years at Forbes magazine and for three years at the New York Post. Sosnoff owns personally and Atalanta Sosnoff Capital owns for clients the following stocks cited in this commentary:Apple, Pfizer, IBM, General Motors and Ford Motor.”<\/p>\n Apple is set to report earnings on April 20 and a new iPhone5 on June 3.\u00a0 It’s still backordered on iPad2s. .<\/p>\n American Airlines has shut off its laptop power.<\/strong><\/span> Something about a “fire.” But you can’t plug in any longer. Take spare batteries. GogoInflight Internet Access still works. And works well.<\/p>\n Anything Goes is a wonderful New York musical.<\/strong><\/span><\/p>\n Susan and I saw it last night. It was super great.\u00a0 Take your family. They’ll love it. For tickets, click here.<\/strong><\/a><\/p>\n April Fools Day.<\/strong><\/span> I’m sure this didn’t happen. But who cares. It’s funny.<\/p>\n At a high school in Montana , a group of students played a prank – they let three goats loose in the school.<\/p>\n But, before turning them loose, they painted numbers on the sides of the goats: 1, 2, and 4.<\/p>\n School administrators spent most of the day looking for No. 3.<\/p>\n
\n<\/strong>The world’s largest insurer was separated from the world’s most experienced risk manager at the worst possible moment.<\/p>\n![\"\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2011\/04\/AnythingGoes.jpg\" "\\"AnythingGoes\\"")
<\/a><\/p>\n