Fatal Risk: A Cautionary Tale of AIG's Corporate Suicide, by Roddy Boyd
If you want to know how AIG (AIG) became the time bomb that nearly torched the financial system, "Fatal Risk" is a good place to start – despite the author's evident admiration for Hank Greenberg, the former AIG chief who is in my view one of the unsung villains of the financial crisis.
Boyd, a former reporter at the New York Post and an ex-colleague of mine at Fortune, delves deep into the company that Greenberg (right) ran as his feudal estate for 30-odd years. Among other things, he examines and soundly rejects the claim that Goldman Sachs (GS) deserves all the blame for driving AIG to the brink of doom in 2008 by demanding cash when the market turned against the subprime market that AIG unwittingly stood behind. This alone makes the book worthwhile.
Boyd rightly places most of the blame for AIG's unraveling with the company's tuned-out management and its unwieldy structure, which meant few people running the company had any idea how badly things were unraveling as markets turned nasty in 2007 and 2008. He also hammers the regulators, which is always good sport: One report from the Office of Thrift Supervision is so perfunctory it leaves the reader with the sense that "they had left their car running downstairs," Boyd chortles.
The book is fairly packed with this sort of pugnacity, which is why it's a shame Boyd pulls his punches when it comes to Greenberg, the onetime billionaire whose full financial crisis debts, in my view, have yet to be tabulated. It was Greenberg who created the AIG monster -- unruly fiefdoms seething with an anything-to-make-the-numbers culture -- that the rest of us paid dearly to prop up. Boyd notes this fact but fails to fully explore its implications.
This blind spot is most troublesome when "Fatal Risk" turns to the clash with Eliot Spitzer that drove Greenberg from the company. First off, it is galling to see Boyd, an avowed nemesis of corporate corruption, take the view that AIG got in trouble with Spitzer over "a series of transactions that would later be taken to amount to some fraction of 1 percent of its book value."
The deals were too small to account for properly, were they? Accounting fraud's OK if the CEO is too busy yelling at terrified underlings and dining on fish and tomato juice?
This is a come-down for Boyd, who hasn't, let's say, made a career of defending the indefensible. Using his logic here, however, any deal smaller than $1 billion is fair game for the too big to fail guys to account for however they like.
Greenberg supposedly stands apart from those chaps on account of his attention to detail. Yet Boyd gives him a walk on all the accounting shenanigans that we know happened on his watch, a tally that runs well into the billions. He was jammed, we are often reminded.
So the book glosses over fact that the sham deals with General Re and Brightpoint and PNC (PNC) and all the rest took place under Greenberg's allegedly eagle eye -- while simultaneously crediting him with the capacity to foresee the housing bust to the point where he supposedly would have gotten AIG out of all the bad deals before the bust came. All this at the age of 80. It's an exceedingly convenient view of the world.
But that's not all. There is also the claim that Spitzer – who, for all his flaws and his hubris and the rest, is the only politician in recent years to take on Wall Street to any effect -- didn't understand the stakes in taking on Greenberg. "Did the attorney general fully understand the utter mayhem that would be unleashed if AIG suddenly collapsed?" Boyd asks.
Um, well, whose job was it to worry about that? I am not here to tell you Spitzer's crusade will play well in the "Ethical Attorney General's Handbook." Spitzer's bullying turned many stomachs at the time, and complaints that he was overreaching seemed inarguable in 2005.
But a couple trillion dollars worth of bailouts later, the argument that it was Spitzer who was the big threat to "the rule of law" seems a lot less plausible. A few Dick Fulds and Angelo Mozilos and Kerry Killingers have a way of reminding people that aggressive policing, warts and all, is much more part of the solution than of the problem. Not that many of our political leaders care enough to do anything about it.
And that is the problem with "Fatal Risk's" take on AIG. Hank Greenberg had to have his hand on all the controls all the time in order for his ridiculous company to keep rolling down the track. The fact that AIG careened off the rails practically the moment Greenberg was forced out is much less an indictment of Spitzer – here's the one guy who didn't leave his car running downstairs, right? – than of Greenberg, who should have known better but clearly had the maturity, not just the metabolism, of someone much younger.
Indeed, in his refusal to back down and quietly settle a case in which he was in the wrong, Greenberg looks a bit in retrospect like Dick Fuld, who could have kept Lehman afloat by selling a big stake but didn't want to, um, dilute shareholders. How'd that work out? Fuld at least has had the good sense to keep a low profile since then. Greenberg, not so much.
So "Fatal Risk" is worth reading. But at a time when that other 80-year-old CEO legend, Warren Buffett, is having his own succession issues, this book dodges the biggest question behind AIG's demise: Was Hank Greenberg really a wizard, or just another Wizard of Oz?
Also on Fortune.com:
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