Home » Black Swans » Castration of Maurice Greenberg by $AIG and Other $XLF Fairy Tales

Castration of Maurice Greenberg by $AIG and Other $XLF Fairy Tales

There once was a powerful Wall Street Mogul. Retired, more than comfortable, Maurice Raymond Hank Greenberg was used to getting his own way. He of course built up the insurance empire we now recognize as AIG (NYSE:AIG).

Shortly after he retired the 2008 financial crisis occurred and AIG did not do so well. Quite frankly it crashed, burned, imploded and fell in upon itself. It was so bad the American people had to bail out AIG as it was “too big to fail”.

Having no negotiating power AIG became a ward of the state. Shareholders lost great amounts of money. Which is what naturally happens in a bankruptcy. Shareholders took the risks. Because of many complicated circumstances which we wont go into here the shareholders actually survived in a manner of speaking after the American people were compensated for their risk.

The American system survived and then thrived somewhat. AIG rebuilt itself and repaid all the very generous support that the American taxpayer kicked in. The American taxpayer made out rather well and made enormous profits. Unfortunately because of huge profligate debts from other actions the huge profits seem like a very small drop in a very large bucket. The American did not notice the profits.

Hank Greenberg did. Much of his wealth and we are sure his ego was tied up in AIG shares. For a few suspenseful months he must have pondered his lack of diversification. Too many eggs in the same basket. Classic diversification and risk mitigation had been ignored. I’m sure he had advice to the contrary but it was ignored.

Hank Greenberg chose to sue the American people claiming that the financial managers hired to save AIG, protect the American and World financial system had extorted too high a price and unfairly confiscated wealth from shareholders.

We can find no record of his viewpoint on what would have happened if AIG had been allowed to collapse with the American people chosing to prop up only selected portions of AIG and letting the rest fend for itself in an ultra-capitalistic manner.

As you would have it there grew a pressure for AIG to join in with Hank Greenberg’s suit. The mothers nipple had been too mean he claimed. He should be wealthier.

AIG’s board at the very least was obligated to consider joining the suit and determining what an expensive long drawn out battle really meant. Given the social and political impact the board resorted to that long drawn public relations technique of press leaks. The media both political and financial were debating the merits of the lawsuit in no time. Public opinion was very much against AIG joining the lawsuit.

The Richter scales shook with disapproval. The board took the prudent course of action as they did not like their chances of perpetuating a politically tone-deaf lawsuit. It seemed like bad business. They quickly wiped the saliva away and went onto the next thing.

They had needed a way to deal with Maurice Raymond Hank Greenberg. They took it to another dimension and invoked the law of unintended consequences. In short they needed a way to not only say no, they wanted a way to get Greenberg off their back. They did not want to be accused of bad stewardship.

The firestorm that arose from the leaks protects AIG’s board from public criticism. It also served up a clever side benefit of skewering Hank Greenberg within the political arena.

Maurice Raymond Hank Greenberg now has nothing.

Hank you’ve been publicly castrated and are being allowed to bleed out.

So I’m wondering. Who on AIG’s board or inner circle was the go between? What were the hook-ups. Someone had lunch or drinks with someone.

It’s important for the rest of the board and inner circle to figure it out. Because if someone brings me a Class A public shit storm…well let’s just say the next time he opens his mouth I would be very very skeptical. Know what I mean.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti or maybe follow his evil twin who is writing a Wall Street Murder Thriller at twitter@georgegutowski

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