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AIG All Over Again?

AIG was the poster child for what caused this crisis: recklessness and greed.  AIG loaded up on trading Credit Default Swaps.  Financial derivatives that were traded on the “black market” called the Over the Counter (OTC) Market.  They basically traded in these derivatives and made a killing trading them until something went wrong - the House of Cards began to collapse.  AIG had made so many bets in the OTC Market that far exceeded anything it could make good on - “its ass could not cash” the amount of bets it made.  Now, former founder, Chairman and CEO - Maurice “Hank” Greenberg is back and building a new company very similar to AIG. 

That is right. Build the largest insurance company in the world add to it a greedy and reckless trading unit based in London, England that practically crashes the global financial system; get $173 billion bail out from taxpayers and go on to start a new company all over again.  Isn’t American Capitalism just grand?

Greenberg owns a company called C.V. Starr.  This company was part of his labyrinth of companies he created that may have benefited from business of AIG (can you self-dealing/conflict of interest).  Now, comes word that Greenberg may be growing C.V. Starr to fill a void left by AIG and he may be helped indirectly by the government bailout of AIG:

Now, Mr. Greenberg may have received some unintended assistance from the United States Treasury. Just last week, the Treasury severely limited pay at A.I.G. and other companies that were bailed out by taxpayers. That may hasten the exodus of A.I.G.’s talent, sending more refugees into Mr. Greenberg’s arms, since C. V. Starr is free to pay whatever it wants.

Greenberg was forced to resign as Chairman and CEO of AIG back in 2005 after allegations of accounting fraud surfaced.  But he still owned directly or indirectly a considerable portion of AIG so, hell yes, he benefited from the government bailout.  It preserved his ownership rights in the company as opposed to having them eliminated through a bankruptcy proceeding.

In fact, this past summer, he won a lawsuit against AIG for ownership rights of a $4.3 billion of AIG stock held in an off-shore retirement account that he set-up for himself while he was CEO of AIG.  Nice.  Hell, yes, Greenberg has benefited from the taxpayer bailout.  And now more ways than one.

This C.V. Starr company is very similar to AIG - except for the high flying trading unit.

Little is known about its business plan, although it has been announcing ventures to insure things as diverse as wayward corporate directors and construction accidents on the bridges and roads being built under the Obama administration’s fiscal stimulus program.

The firm seems to be focusing on the specialized lines of business insurance that once made A.I.G. stand out. The government had hoped to leave those businesses at A.I.G. intact after selling off most of its other operations, like life insurance and household finance.

C. V. Starr is also taking on the same form as A.I.G. — an intricate group of companies, each with its own line of business.

For now, most of those companies do not sell their own insurance, but operate as general agencies, representing insurers from rival groups on products that C. V. Starr does not yet sell.

That way, if C. V. Starr does not yet profit from the underwriting of a line of insurance, it can still receive commission income by selling it. “That’s the beauty of how he structures the company,” Mr. Barile said. “Everything is in such silos that every time you make a transaction, the outside world thinks you’re competing, but you aren’t.”

C.V. Starr is also a controversial company and shows the level of unethical behavior of Greenberg:

Former AIG chief financial officer Howard Smith earned almost half his $2.7 million in compensation last year from two private investment firms whose fortunes were tied to the big insurer’s but whose interests might have been at odds with its shareholders’.

Under the arrangement, Smith pocketed $1.3 million as a partner at C.V. Starr, an insurance brokerage that sells insurance for AIG; and from his stake in Starr International, which owns 12% of AIG’s stock and participated in some of its controversial reinsurance deals, according to regulatory filings.

Former AIG CEO Maurice “Hank” Greenberg was the biggest beneficiary of the Starr relationships. He received 34% of his $16.9 million in AIG-related compensation last year from the private firms, which he controls. He and Smith are at the center of fraud lawsuits by the New York attorney general’s office and two pension funds that accuse the former executives of enriching themselves by falsely burnishing AIG’s financial performance.

Greenberg, AIG and C.V. Starr were sued for this activity:

An action by the Teachers’ Retirement System of Louisiana says key AIG executives who held virtually identical jobs at C.V. Starr brokered hundreds of millions of dollars in insurance for AIG while acting as executives of the private firm, thus diverting millions of dollars in commissions to themselves.

“Those executives became beholden to Hank Greenberg. Therefore, he had the power to make them do things that ethical people don’t normally want to do,” says attorney Louis Gottlieb, who represents the Ohio Public Employees Retirement System and other state funds in related complaints.

This lawsuit was settled by the parties:

The Teachers Retirement System of Louisiana [official website] on Thursday settled a shareholder suit against a group of former executives from American International Group (AIG) [corporate website], including AIG ex-CEO and chairman Maurice “Hank” Greenberg. The lawsuit, filed in 2002 in the Delaware Chancery Court, concerned improper transfers of approximately $1 billion from AIG to C.V. Starr & Co. [corporate website]. The former AIG executives, including Greenberg, were officers of C.V. Starr, an insurance company closely related to AIG, and received compensation from Starr in addition to their AIG salaries. The parties reportedly settled the lawsuit for $115 million, with $29.5 million to be paid by the defendants themselves, and a directors’ and officers’ insurance policy paying the remainder.

Of course, Greenberg denies having a hand in or causing the collapse of AIG.  But, he created the AIG’s Financial Products unit (AIGFP) that caused its collapse.  Do you think he was telling the geniuses that were operating the AIGFP unit when things were going great that “hey guys maybe we should slow down.”?  Yeah, right. 

Bottomline is this: Greenberg benefited from the bailout of AIG in several ways: 1) it preserved his huge ownership interest in the company and 2) it is helping him to build his new company.  He has never been held accountable for anything except Teacher’s pension lawsuit but that was chump change.  But consider this: if we screw up and get fired from a job it becomes part of our employment record but if you are part of the financial oligarchy, like Greenberg, you can be unethical, greedy and reckless and have a hand the collapse of the global financial system and go on to start another company.  Only in America?