Greenberg, Spitzer and AIG

Larry Ribstein —  5 April 2011

James Freeman, reviewing Roddy Boyd’s new book about AIG in the WSJ, discusses how Eliot Spitzer forced Hank Greenberg out of AIG in March 2005, and the consequences of that move: 

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.  * * * [R]eaders of “Fatal Risk” will have a hard time believing that Mr. Greenberg wasn’t superior to the AIG management that followed. Mr. Greenberg had long been obsessed with ­addressing every potential threat to the company. * *  * Mr. Boyd says that there was one ­appointment he never missed—a 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—and so, apparently, did the habit of making risk a matter of abiding concern.

We now know the consequences of AIG’s post-Greenberg attitude toward risk.

Remarkably, Client 9 is portrayed as a neglected hero of the financial crisis in the recent Inside Job.  But as I said in August 2005:

[H]istory will probably demonstrate that AIG was better off with [Greenberg] in charge, or trusting to corporate governance processes to replace him, than with Spitzer’s political maneuvering. 

Larry Ribstein

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Professor of Law, University of Illinois College of Law