Greenberg Says AIG Bailout Was Avoidable

April 2, 2009 -- Maurice "Hank" Greenberg, the former CEO of AIG, told Congress today that if the struggling insurance giant had simply been allowed to declare bankruptcy taxpayers would have been spared spending $180 billion to bail out the company.

And a bankruptcy by AIG would not have created economic havoc, Greenberg told a House Oversight Committee.

"It would have been a ripple, but it wouldn't have been catastrophic," he said.

The U.S. government bailed out AIG out of fear that a collapse of the huge company, which had extensive links throughout the U.S. economy and the world economy, would trigger an economic calamity.

Asked by Rep. Darrell Issa, R-Calif., if bankruptcy could have saved "tens or hundreds of billions of dollars" of government money, Greenberg replied, "That is correct."

"Everybody would have been better off, in my judgment, if they had declared Chapter 11," he said.

Greenberg, who led AIG for nearly four decades before he was forced out in 2005, came to Capitol Hill today to testify about the federal government's efforts to prevent the company he helped build from collapsing under a mountain of bad debt.

He said the federal bailout of the insurance giant has "failed" and Americans cannot expect to recoup the $180 billion the government has poured into the company.

"I share your concern, and the concerns of the American people, that the terms of the AIG bailout has tremendous burdens on taxpayers," Greenberg told lawmakers. "All plans so far advanced by the U.S. government to date have failed and the current plan, in my opinion, will not succeed. Major mistakes have been made."

He said that dismantling parts of AIG at "fire-sale prices will bring taxpayers... only pennies on the dollar for their investment in AIG."

Rather than proceeding with the government's current plan to wind down AIG," Greenberg proposed that the company should be rebuilt so that American taxpayers, who now own 80 percent of AIG, can eventually get repaid.

"AIG's history demonstrates that its business can be highly successful," he said. "If properly managed and managed properly, AIG is the only way to ensure that the American taxpayer will be repaid."

"The primary objective," Greenberg suggested, "should be to create conditions that allow AIG to repay the taxpayer in full and rebuilding AIG is the best way of doing that."

"AIG's business model did not fail - its management did," he said.

As he has done in the past, Greenberg today refused to accept any responsibility for the present situation, despite critics, including AIG's current management, pointing the finger of blame squarely at him for AIGFP, the unit of AIG that is blamed for accumulating the mountain of debt that brought the company to its knees.

A source close to AIG told ABC News last month that Greenberg was to blame for forming AIGFP in the first place, which "put the whole company and the whole economy at risk."

"When I left the company, it was a healthy company," Greenberg argued today.Greenberg pointed out that AIGFP had functioned well under his watch, but that his successors failed to pay sufficient attention to it, enabling the unit to engage in poor risk-management that eventually proved fatal.

"They got greedy," he said.

But lawmakers on both sides of the aisle were far from convinced that Greenberg was an innocent man.

"I think you had a significant role to play, particularly with regards to the problems with the Financial Products division, which has largely been blamed for the downfall of AIG," said Rep. Elijah Cummings, D-MD.

Greenberg said that after he left, the unit had engaged in risky bets even after losing its triple-A rating, but Cummings quickly noted that AIG lost that rating the day after Greenberg stepped down in 2005.

"They went off on a tangent," Greenberg said of AIGFP. "They wrote in nine months more than double the amount of business that we had put on financial products than we did in the past seven years and of a lower quality. All of that's been verified. So clearly if you don't have controls and if you don't have management oversight, things could go wrong and they did."

"What you fail to mention is that a good portion of those risky bets occurred while you were still at the helm of AIG," responded Cummings.

Across the aisle, Issa agreed with Cummings' criticisms.

"It is clear that the crumbling of AIG began on your watch, that there were systemic problems that had occurred," Issa told Greenberg.

Issa also raised questions about Greenberg's credibility, noting that he is "a recurring figure" in criminal and civil investigations by the Department of Justice and the Securities & Exchange Commission. The hearing is the first in a series that the committee will hold on the failure of AIG. Later this month, current CEO Ed Liddy will testify before the panel. Today Greenberg, who ran AIG for 35 years and remains the company's largest shareholder, said Liddy is not the right man for the job. "Liddy's a nice person, I have nothing against him as an individual," Greenberg said. "But he ran a domestic insurance company. He's a good man, I have no problem with that, but he doesn't have the background for the job that needs to be done." Last month, Liddy came before a separate House panel and told Congress that AIG's "overall structure is too complex to be managed as one entity", a claim disputed by Greenberg today. "AIG's history demonstrates that its businesses can be highly successful if properly managed, and managing AIG properly is the only way to ensure that the American taxpayer will be repaid," he said.

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Former AIG CEO Maurice "Hank" Greenberg, who led the insurance giant for nearly four decades, told Congress today that the federal bailout of the insurance giant has "failed" and that American taxpayers cannot expect to get their $180 billion investment back.

Greenberg, who was forced out of AIG in 2005, testified today before a House Oversight Committee about the federal government's efforts to prevent the company he helped build from collapsing under a mountain of bad debt.

Greenberg argued that the government's plan to liquidate AIG has failed and also diminished its value for taxpayers, who now own 80 percent of the company after it received more than $180 billion in bailout cash.

"That plan has failed," he said. "A successful liquidation is impossible in the present economic climate since buyers for AIG assets at fair prices simply do not exist at this time. Fire-sale prices will bring taxpayers, who now own almost 80 percent of AIG, only pennies on the dollar for their investment in AIG."

"Since the day the treasury announced its plan to liquidate AIG, value has been destroyed because AIG's people and their relationships -- AIG's business -- are leaving," he said. "The evidence is overwhelming and indisputable that the American taxpayer is an investor in a steadily diminishing asset."

The hearing is the first in a series that the committee will hold on the failure of AIG. Later this month, current CEO Ed Liddy will testify before the panel.

Last month, Liddy came before a separate House panel and told Congress that AIG's "overall structure is too complex…to be managed as one entity."

"AIG is not too big to be managed. It is too big to be managed poorly," Greenberg argued today. He said that the company -- and taxpayers' investment -- can still be salvaged.

"AIG's history demonstrates that its businesses can be highly successful if properly managed, and managing AIG properly is the only way to ensure that the American taxpayer will be repaid," he said.

To save AIG and help taxpayers recoup their money, Greenberg lays out a 10-point plan to replace the government's "systematic dismantling."

"The goal of government should not be to liquidate large companies that have demonstrated that they can succeed if properly managed. It should be to restore them so that they can be employers and taxpayers," he said. "We have the opportunity to follow a different course that will both preserve tens of thousands of American jobs and better ensure that U.S. taxpayers are repaid. The way to do this is to abandon the liquidation approach and focus instead on rebuilding AIG so that it is better positioned to pay back the taxpayer."

Greenberg argued for slimming down the government's stake in AIG and pressuring trading partners that got huge payments as a result of the insurer's bailout to funnel some of that money back into AIG as an investment. He also suggested separating AIG from the troubled AIGFP unit, whose trading in controversial credit default swaps plunged the company into crisis.

Greenburg also gave a vehement defense of his role in AIG and said his policies are not to blame for the company's failure.

"AIG's business model did not fail. Its management did," Greenberg said. "AIG's business model has a long track record of success over many decades. AIG can recover from its immediate crisis, continue to be an employer of tens of thousands of hardworking Americans and repay the assistance it has received from the American taxpayer, but only if both the government and AIG's management change their approach to dealing with its future."

In introducing Greenburg, committee chairman Rep. Ed Towns, D-N.Y., said, "Today we will hear testimony from the one man who knows more about AIG than anyone in the world."

"We need to understand what went wrong, so that we can figure out how to prevent similar disasters in the future," Towns said.

Forced to step down in 2005 in the midst of a fraud investigation run by then-New York Attorney General Eliot Spitzer, Greenberg has said AIG's collapse cost him his entire net worth.

AIG Criticized for Misuse of Bailout Money

"These cash payments to CDS counterparties should never have occurred," Greenburg said. When he's not blasting the government, Greenberg ripped his successors and defended his reputation after some critics blamed him for creating AIGFP, the unit that drove the company into the ground.

A source close to AIG told ABC News last month that Greenberg was to blame for forming AIGFP, which "put the whole company and the whole economy at risk."

Greenberg rejected those criticisms today.

"Massive losses at AIGFP in 2007 and 2008 resulted significantly from a shift the way the unit did business after I left the company in spring 2005," he said, adding that AIG wrote as many credit-default swaps on collateralized debt obligations in the nine months after he left as it had in his last seven years as CEO.

Greenberg exonerated himself from any blame, touting his accomplishments such as the insurance giant's market capitalization skyrocketing 40,000 percent between 1969 and 2004.

"We had comprehensive and conservative risk-management structures and procedures," he said. "Neither I nor other members of my senior management team had employment contracts. I received no severance package in connection with my retirement and I never sold a share of AIG stock during the decades that I served as CEO, although I did contribute tens of millions of dollars in stock I owned to a family foundation to be used for charitable purposes."