It’s not that the data is different; it’s the interpretation.
For instance, Brad DeLong’s What Obama Needs to Do is three(or four) fine suggestions, one point (2) that hasn’t worked yet but bears repeating, and a moment (5) of hope that really does required Congressional action, as Stan Collender noted today.
But the three good points are things several of us have been saying for years now, and the chance that the Obama Administration is rational enough to do them has only increased by the degree to which Larry Summers is no longer there. I want a pony, too.
So when I suggested a few days ago that Buce was Much Too Generous to Maurice (“Hank”) Greenberg here, it’s not that I believe Greenberg was an absolute failure. He built AIG into what it is today—well, what it was before he lead it to what it became, which is (again) about what it is today.
And there’s the rub, if not all of The Real Story. So this will be a Very Long Post, with Muliple Sidebars and Anecdotes. Feel free to skim; it’s below the fold.
In the deep, dark past, bankers were respected members of the community. I mean real bankers: the guys the investment bankers refer to as 9-6-3s: they lend at 9%, they take in deposits at 6%, and they’re on the golf course at 3:00. It wasn’t that they were the only game in town—though often enough they were—but it was a good, straightforward, relatively easy business. As long as you didn’t make a big mess (and there were very few chances to do so) and kept your personal life reasonably under control, you got and maintained a great reputation.
The equivalent of that, in the days before demutualisation, was runnning an insurance company. You took near-term premia, had long-term obligations at a rate below what the market would pay (on average, in most cases), and you just had to, again, manage your personal relationships and your acquisition of clients. (As with derivatives, a small variation in the fourth decimal place means a lot of money.) Get ones who are marginally healthier, where the same payout is made one year later, and you’re a superstar.
After demutualization, having the stronger balance sheet going in means you’re in a better position to acquire weaker competitors. AIG:Insurance::MannyHanny*:Banks
All with a AAA balance sheet. Safe, stable investment. At least until the Noughts.
Sidebar: In the distant past, I traded for a AAA-rated bank. (You can read all about the bank here. Note that the 2003 subtitle has been replaced in the paperback editions by a more accurate one.)
The thing about working for a AAA is that people come to you. I went to a party with former coworkers—mostly people who are both smarter and more driven than I am, and whose c.v.s have Rather Famous Names, both Before and After—and the department head (who does not fall into either of those categories, but is a sociopath) was talking about how they were planning to schedule meetings with firms such as Coca-Cola and Annheuser-Busch.
I had done a large, complicated deal with Annheuser-Busch that morning. And it wasn’t my firm’s U.S. marketing skills or special product knowledge that got us the deal. It was the AAA rating.
Once they lost, that…well, Gillian Tett can tell you the rest better than I (who left before that happened).
So when people tell me that Maurice Greenberg was incredibly detail-oriented and carefully managed every aspect of AIG and would have gotten it through the crisis, I’m naturally suspicious.
That’s partially because I know someone who fits that description perfectly: Warren Spector. He tracked the errors, he knew when the departments were not producing well, he pulled plugs, and he checked risk positions with the best of them. William Cohan’s sources may not have told him this, but Warren Spector probably could have saved Bear Stearns.
And if there had been a few more people like me speaking with Cohan, House of Cards would have turned out more like Fatal Risk than Indecent Exposure as if it were told from Begelman’s perspective.
Don’t get me wrong; I speak with people at AIG, and there are those there who firmly believe that Maurice “Not the Baseball Player” Greenberg could have saved them, Jack Aubrey-like, from all that followed his reign. But that’s faith, not evidence.
Part of the reason, one suspects, that Cohan marginalizes Spector while Boyd totemizes Greenberg is the AIG Board of Directors ousted Maurice Greenberg at virtually the same time the firm lost its AAA rating. Make no mistake: the Fall happened on Greenberg’s watch, his legendary attention to detail notwithstanding the balance-sheet distortions that were harbingers of Things to Come.
Even if we ignore that his direct “competitors” in the early Noughts notably included his two sons, Greenberg-as-CIO was always the man with the advantage. He never ran the firm when it had to compete with others in a relatively-level playing field.
Credit where due: he found a flaw in the insurance market, and he built a company around it. So did many others, Mike Milken most obviously among them. Building a firm is an accomplishment; running it is not necessarily the same skillset.
Similarly, running a AAA firm is relatively easy. Running a AA or below firm—the firm Maurice Greenberg left his firm in the hands of Martin J. Sullivan, who was (per Wikipedia) his selection—is often a different matter.
It was Sullivan—a UK native—who had to run the AA firm, and on whose watch the AIG Financial Products group under Joseph Cassano went from the operation that compromised AIG’s AAA rating to the area that took the firm down.
Would Greenberg have stopped this? There is scant evidence in favor of such an argument. Greenberg’s objections in 2008 were to the Board’s attempt to save the firm by selling-off “non-core assets.” Similarly, none of his back-benching—dangerous back-benching, arguably, given that his holdings in the company make him more visible than the member from Clan Agnew—from 2005 to 2008 was never about the risk that the Financial Products area was expanding too quickly.
Maurice Greenberg remained, iirc, the largest shareholder of AIG even after his ouster. In his frequent interviews, he made no secret that he was in contact with multiple board members. His rather hand-picked successor shepherded the firm into disaster, a disaster architected with pick-up sticks by workers in and from his native land.
Could Maurice Greenberg have saved AIG? It’s nice to think so, but nothing in his actions, statements, or post-crisis recommendations makes that a likely story.
Maurice Greenberg never ran AIG when it was not The Firm With Which People Wanted to Deal. He built an impressive edifice, but so did the Sons of Noah—and Buce knows how that ended.**
So the story that gets told is a man who was Always On Top. And we forget that this is also the man who put his firm into the position where his successors would never have the same opportunity he did.
But Buce knows better: hubris is always followed by ate. The tale of Maurice “Hank” Greenberg is the tale of A Man Who Had It All, and who left it to be destroyed by his hand-picked successor and his successors.***
That’s not the Success Story we want to tell, but its a lot closer to The Real Story, even ignoring the familial nature of the charges that began this whole discussion.
So Buce’s conclusion is, I believe, accurate: Eliot Spitzer did not destroy AIG. I can make a much better case that Maurice Greenberg did, but can live with the story as it is currently told, where Greenberg led the firm until it entered uncharted waters, and then was forced to turn the rudder over to his First Mate.
*They may have gone by Chase, but the takeovers were run by the old Manufacturers Hanover team, up to and including J. P. Morgan.
**Genesis 11:1-9 for the rest of you.
***And Ed Liddy, who was a ridiculous choice even by Tim Geithner standards.