Tuesday, May 31, 2011

Can the Taxpayers Thank Eliot Spitzer for AIG?

In a word, no.  But I've been reading Roddy Boyd's book about the AIG collapse and meditating on a Turledove Scenario as to what would have happened had not Eliot Spitzer set out to disencumber AIG's Hank Greenberg of his scalp, back when Sppitzer was still king of the hill, months before his own political career cratered in a blaze of hypocrisy.

Review the bidding. For as long as anyone could remember, AIG had been the shadow of one man--Greenberg--who for so long enjoyed a reputation as one of the great CEOs, fit company perhaps for no one but Warren Buffett.  How distant all that seemed during the dies horribilus in the early autumn of 2008 when AIG and, it seemed, so many other icons of American capitalism collapsed into the not very welcoming arms of the United States government.

By the standard account, it was a replay of the too-familiar "rogue trader" story--one cowboy (and a London cowboy at that) marketing one catastrophically bad product that brought so many buzzards home to roost. How could so formidable a manager as Greenberg have allowed it to happen?    But that is the point: Greenberg wasn't there any longer.  He'd been hounded out of his job by Spitzer in "an accounting scandal" back in 2005.  At the time--and even more, in retrospect--there were those who said the "accounting scandal" was pretty small beer but no matter; Greenberg three and a half years before the collapse.  Surely so formidable a manager could have averted this calamity--and ergo, surely it was Spitzer who brought this debacle to the taxpayer's door?

This version is at least beguiling and by Boyd's account, there is just enough truth in it to justify attention in so august a forum as this blog.  Bur in the end, I don't think it holds up, and here's why.

The key is to scrutinize Spitzer's motives when he went after Greenberg.  I think we'd have to recognize that his motives were not entirely a matter of disinterested public service.  Spitzer was (and remains?) a man of vaulting private ambition, with the ego and the competitve ruthlessness to match.

Now look at AIG.  Grant that the charges themselves were indeed small beer.  The fact is that AIG was already beginning to skid when Spitzer and his legions showed up at the gte: the company had become too big, too complicated, too (toxic label) mature for its role as the golden favorite of the growth-stock popularity sweepstakes.  Greenberg was getting older, and was finding he had to work ever harder to keep all those plates in the air.
They say that nobody is indispensable in a sense this is true enough, but if ever a man came close to indispensability, it was Greenberg.  And this is not a compliment.  He'd created a marvel like nothing so much as Bismark's Germany--as brilliant concoction, so complicated that nobody but he could keep it in motion.

In short, Spitzer exercised one of the prime skills of an ambitious megalomaniac: he sniffed out weakness.  He knew that Greenberg was an icon ready to topple and he brought him down.

So Greenberg was out.  From there on, popular accounts of the AIG collapse treat it as a "lone cowboy" story--Joe Cassanno's little credit default swaps shop bringing down a great enterprise, but as Boyd tells it, the story is more complicated than that.  There were any number of people who were willing or at least ignorant participants in Cassanno's folly.  If they gave out academy awards for financial folly, Cassanno's litany of thank-yous could extend long into the night.

And it appears that Greenberg himself didn't help matters.  Although he was out, he didn't go quality: he spent most of the years after his departure scratching and clawing at his former colleagues over the rights and wrongs of his dismissal.

But could he have stayed it had he stayed?  Ah, now that is the Turtledove question.  You can certainly think of ways in which he might have.  By Boyd's account, Greenberg was/is the ultimate micromanager, yet an uncommonly effective micromanager: he really did know how many nickels rolled under the couch, and how find and retrieve them.    Yet recall that even--especially?--micromanagers tire after a while.  Indeed on second thought, AIG had had some near misses with bad management before.  And indisdensable men by definition leave a whole lot of wreckage in their wake.

Shoudawouldacoulda.  Spitzer took down Greenberg because he smelled blood, because Greenberg was there.  But considering how driven and unstable the whole enterprise had become, there's a pretty good chance that AIG would have collapsed anyway.  

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