>> he talks about the rise and fall of the international insurance and financial products company. this is about an hour. >> all right. well, good evening to all of you. i think we will get under way. first, would like to welcome you to the center for the national interest and i would like to thank its president for brest together this evening. thank you for that. i would also like to welcome green bird to the center. he is the chair. and first in that regard i want to thank you for your dedication to the center for many years. starting at its creation and its development and advancement, you devoted time to our energy, passion, and substance, really, to the center. now as it is the center for the national interest. thank you for that. hank greenberg has also not only made a substantial contribution to this center intellectually and in many capacities, but he also, as i think a number of you know in this audience has made a very substantial contribution when you were vice chair of the council on foreign relations. i have to mention that because i happen to be the head of the washington office of the council on foreign relations. my first meeting with take rainbird, by the way, was an interview. those of you who know, he was the president at the time. pete peterson was the chair. so we are sitting outside of hate rainbirds office. and let's put the fear of god and me because he said to me we are going in to meet with hank greenberg. renowned businessmen, he has made a tremendous mark on the development and rise of aig. you know what to me he is very direct. he is very snappy, time efficient, no nonsense. he will look you right in the eye. he told me, make sure that you are direct, let him ride in the right and get to the point. i said, i will. well, the good news is i got the job. [laughter] but that was my introduction to hank greenberg. as you know, today we are gathered to mark and to graduate, if i may say, hey got his book, "the aig story." the buck, i think, really underpins what hank greenberg is about. in fact, i liked very much henry kissinger's inscription in the back in which she talks about your being truly a major figure in american business in the 20th-century, someone who is principal cost of a committed, and does not waver on one's principles in that time of crisis. and now think that the story really under currents and substantiates that. the book is not only a chronicle of his personal story, starting with his departure from being an army officer in the korean war and his entry into the insurance industry with continental casualty company. then going on to become the head of -- and ceo of aig. to what became literally in the largest insurance company in the world with almost over a trillion dollars worth of assets so there is the personal side to what there is also the other side of the story, which is a very instructive one and one which we are going to grow with you, especially today. that is, the sensitive side of this book which specifically sets forth some very profound questions, profound and serious questions about government regulation in the financial industry. and what are the unintended consequences of this kind of regulation and what it does actually as in this case. we witnessed the rise and fall of aig. what it does on a personal level , to the organization, and in this case to a business that is truly a national asset to the united -- for the united states. this is a must read. with that i want to turn it to a hank greenberg. please join me in welcoming him here. [applause] >> take you very much. >> the chap who really made the organization go. he's here in washington. i tried to get by frequently, but he is the man that has been with this organization. no misunderstandings about that. i also want to recognize an ambassador from the philippines. we work together for many years. ran one of our company's the philippines when i write this book? hundreds of thousand people a veggie who worked with me for years. i work that there's @booktv believe their story had to be told. how did we get from -- $300 million market value. when i left at the end of march 2005 it was 180 billion. we had a great growth. there was accomplishments by many people. aig was an outgrowth of the start companies. the collection of insurance companies. the founder put together. i join him. after several years i succeeded him. we added several insurance companies, small ones. tick them public in something called a aig, but the stock companies will never -- were never part of aig. they founded a hajji. they were kept out. there were too small to really put into aig. i never barely they fall that we did that. [laughter] it made no sense to put the men at the time. we grew rather rapidly. there are several things that we had in our genes that made as grow from where we were to become the largest insurance company in history. obviously it was the people, but you want to call us mavericks, we were that. we were innovators. we broke with typical tradition insurance type of underwriting where most of the business is either automobile or homeowners. very little growth in anything that was new. all of the large risks were going to lloyd's of london and we believe that we should be in a market in the united states that could accomplish that. that was on the general insurance side. on the life-insurance side we had the small company in the philippines, at least iran. it became very huge. as we did the company's. we had a company called calico. many committee catchers around the world. we run a new vision to the insurance industry, both and products and innovation we introduce something that i have learned. those companies had an agency department and the underwriting department. the end of the year their lawyers out of the lost money, and that just went on and on and on. we introduced a profit structure where one person was in charge in the products and marketing of it. so you knew his accountable. there was no blaming anybody else. it was your own accountability. that structure was so imbedded in aig thinking that the people who understood it and forest in a state with the company. that made us stronger and then weaker. it worked well. this operator well. there was a culture in the company. it does not -- culture does not happen automatically. you create a culture. senior people work together very well. the board of directors initially of aig was made up of mostly inside people who were running the company. we had some outside people obviously and some very fine people of the time. all of that change -- to the first part of the book we touch on that. well we meant to the country overall. a couple of vignettes of this that all talk about briefly. a book written on something. a book about a russian sub that went down in the northwest pacific the russians to know where was. they wanted to recover it. code books were important. the technology was important. it was decided they would try and recover. the median my apartment, the general counsel of the cia, is deputy, the deputy of howard hughes. a very large vessel to hold in the center that would scoop this up. then you had to think about what if the russians decided what we were doing was looking for the submarine. what would happen if they fired on us? could not bring this tool id. we knew. put it on the beach. that was not going to work. so we had to take the pacific islands that was obviously in the european position. bill the report. we provided the insurance without operation. there are many gabonese that have the vision was still, the underwriting skill to take on a project like that. i happen to be -- while the operation was going gun i was a non kong actually and a board meeting of aig. taking around asia. we had a call from the agency. but the story. during the course of the recovery. obviously that did not provide the kind of deprivation we had, even if you got -- might have some technology out of it. but one example of a hajjis value to the country. many, many stories like that. i was asked by a very high government official. and it he said what terms as president, as permitted by law to me declared martial law. there was a mistake is lawyers who is alive. the country was restive, revolution was possible. marcos was l, on dialysis. i did go up. long who had been the head of the naval forces in the pacific also john reed who had been the head of, the head of the operation in the philippines, as i did know that. we had dinner with. it was over. step down the top of your game. no one would believe that. you've overstayed. september i can. the convention was held. uprisings in the country. taken up by helicopter. he subsequently died. how many insurance companies the you know of provide those kinds of services to the country? there were many, many others. that's not the point of the book. the point of the book was to say how differ we were in of valuable an asset we were to this country and that thousands of people that made that possible. the second part of the book is what happened. we had. we had in new york el a disgraced attorney-general who decided that there was a lock on the books in new york called the martin act that was elected in 1921 who was designed, a dormant law which he dug out one of the staff target out. silent as to intense. if you can't accuse someone of a fraudulent act he took the position we have to prove intent. soak you can ask anybody who has made a mistake with something or other and force them into submission or to go trial. and use that against many companies who through their hands of and just agreed to settle them and paid huge fines. i would do that. what happened. if -- this is after enron. there was a sea change in regulation in the estates. that brought about enormous change in corporate governance. and directors of companies felt vulnerable. and so and so these companies were downgraded in the management of an institution. in some cases it may have been good. in many cases it was not good. wind up board was trying to really run the company, its operating in 130 can do , -- countries with the management knows moment to moment what is going on directors come four tir year no matter how diligent they are, it's not difficult for them to have a detailed knowledge of what it is to take to run the company. the management of aig travels constantly, on the road constantly. our regional executives, the reporting was a real time basis. we knew was happening. i could tell aig results by today's. it was real time basis. so throughout 1/4 we would know how we're doing. so in 2000 -- i think the year 2000 we had consolidated a reinsurance company that we had started years before. we had about a 40% interest. a 50% in that year. i had just come back from an overseas trip trying to catch up from my senior managers, what was happening in their areas. one of them said, show a little bit of reduction in reserves in the quarter. we had about 25 billion in property-casualty reserves. it might be down 50 of million of the quarter over 25. what does that mean? you have reserves. when you pay and claims it goes from reserves to pay. as a normal process. if you pay you pay that. the reserve comes down. the transatlantic -- excuse me, we were just consolidating, paying catastrophe loss. there are down 400 million of the 56. as the consequential lumber. it's a nothing. so one of my people said what we get what is called a finite reinsurance treaty which essentially says -- and this is common in the insurance. you get premiums and losses from the reinsurer for a finite amount of time. in order to be counted as reinsurance you have to have a 1% risk factor, 1%. and so we got 500 million premium and 500 million, where the number was of loss reserves from the generally which is a warm buffett company. they happen to be our largest reinsurer. it's logical to talk with him. i made a call to the president to a new very well. a very honorable guy. he said he would check to see if they had the proper portfolio. he got back to me several days later and said, yes, we can do this. i was out of it after that. the staff took over. the use to do about 40 million things year. people follow up on all that. soap buffett had a company in virginia that have done a transaction that led to that company's bankruptcy. the two top people went to jail. the medical malpractice insurance company. so buffett was asked, did you do any of these other deals? he referred back to the transaction that we did five years deal which was approved every year by the auditors and gave mr. spritzer all of the transactions that they had done. so he jumps on this transaction. he did not know reserves from premium. he did not know. to talk about baseball would have been the same thing. he had no knowledge of any of that, but he used that to bludgeon the board. and my friend sitting here was on the board to time. a stand-up person, my say. he and another board member, probably the only to who bought this silliness that was being presented. the auditors college and approve this five years a row withdrew their approval. you know, if they don't sign off on year-end results it might cause a little shaky is in the value of the company. we were a triple-a-rated company and the highest ratings. a growth pattern that was the envy of the zero industry. and it was clear that spencer was going to demand my head. and this change in corporate governance that we refer to really became -- this is a great example of what happened. the destruction that it led to, it was just unbelievable. there was a meeting held, one of the lawyers of town. a good friend of spritzers. he was a jogging partner. the other lawyer of the firm which was a corporate lawyer for aig, spitzer had been an associate. so it was really even into, you can tell -- you can tell. they had a meeting and decided i should step down. i was guy to step down as a seal in may at the annual meeting. i was going to remain as the chair for a couple of years to see how the transition was going to work. i thought that was a reasonable thing to do. spitzer demanded i believe then. i could remain as chair until the annual meeting. i said, no, i would not do that. okay. you can stay as chair. i decided to make a foreign trip to malaysia and china. i decided as that trip. i asked david boyd, who represented me, to write a letter. now, i know that bill cohen asked the others, for example, this transaction affects shareholders' equity or earnings and he said no, it does not affect the. you have approved it for five years in a row. we cannot do that. putting pressure from the national office. there were any pressure from spitzer. they asked, well, just circle that. it had no effect on earnings, so what is the difference? he would not do it. and so it was clear that there was -- that spencer had one aig over. i left the company. i left the find which led to class-action suits of several billion dollars more. well, you think about what this man did. he went on national television and accused me of criminal fraud without ever having invited me or presenting any evidence that i did anything wrong. john whitehead wrote an op-ed in the "wall street journal" commenting how and attorney-general can do this to one of america's leading ceo's. spencer called and threatened him after that. so clearly what happened in corporate america is that boards lost enormous power. ceos lost enormous power. boards took over one more responsibility. bell, is that good for american business, the economy? it is one of the reasons i have written this book because i do think that it is disgraceful what they have done. i would not settle for a dime. they have tried to give me to settle in the number of times. i would not do that. the court of appeals, the highest court in new york that can determine whether or not the martin act as currently written and currently being used is constitutionally proper. it cannot be. it can't be. you have to prove that they did something wrong. i was so far away from the transaction that the justice department looked at me for five years. for five years. there is nothing we can do. he did nothing improper. the first part of aig destruction. after that now you go one. they're coasting along of strength. all of the risk-management controls the we had in the company were disassembled. we had an enterprise risk manager the system, one of the first put together the. it is being claimed that aig had so many companies have reserved a versatile american it when management. diversification is good, not bad. it's a proper strategy for company. we head geographical diversification and the ad business to verification. it worked for years. so to claim that diversification is bad, you should become a symbol insurance company. well, look at their records. they're terrible. nothing wrong with the strategy. now you have boards of directors telling companies what kind of strategy-and a half. is that what corporate america, is that what we want in the economy? that is just plain wrong. so that issue goes on. i am out of the company. that is meant to divide this management structure breaks down. i chaired the new york fed for a number of years. one of the top risk managers left the fed. i hired him. he put together agree risk-management structure for the non insurance entities the we head. it was just sold to china for a 20 odd billion dollar loss on the books. great step forward. but we had a great risk when the system. that was abandoned. began taking on more and more risky, what you call credit the fall swaps covering the ceo packages of mortgages. but together by investment banks and supposedly had been raided by the rating agencies. having declared this is a triple-a-rated portfolio. before you write a credit defaults what you want to know what your ensuring eventually. most were declared to be aaa. they had very good mortgage contents and then. it turned out to be triple garbage. and so why would it aig respond to collateral calls from those who had placed those with aig? but they did. they kept on providing collateral because aig then lost its aaa rating. there were not required to put up collateral as long as there were aaa. we had been aaa for as long as i could remember. so they kept on coming up with collateral. now, the problem is, there was no price discovery on that cbo. there was no market trading like you were on the stock market. so every broker-dealer had a different price for the same cbo why would you respond to collateral calls? and since he could not get the same price why would you respond? i would not have. i would not have responded and all. so when things got hot and aig was running of the credit there were not insolvent. they had plenty of solvency. close to the chilean dollars in assets. so it reached a point where aig needed. in the markets of rose. you could not borrow any money anyplace. so by then a man from was running the company. i knew him quite well. we were friendly. i try to help him anywhere possibly could. so he calls the new york fed and says, i need access to the fed window. they refuse. he kept on badgering them. they refused. goldman got a bank holding company license. morgan stanley got a bank holding license. they get media access. it was an insurance company had offered. they said go out and buy a small bag for $10 million a dead. they have access. aig was denied access pending government funds. finally paulsen calls and says, going to give you one plan. take-it-or-leave-it. this is the second year of the treasury -- secretary of the treasury. $85 billion. fourteen and a half percent interest. anyone who is borrowing from the fed window is barring and a half to 2%. and we want a 79 and a half percent interest in the company. incidentally, you're fired. and putting in somebody else. somebody else happened to be ed liddy who was on the goal the board. so he asked him to sign the agreement that he had just told of about. he said, and not going to sign it. you just fired me. so he's signed the agreement. retroactively three days later. i have never heard of the secretary of the treasury of the united states calling the company's ceo and firing him. a job for the board of directors , not the secretary of the treasury. and to have a director during that because of the $85 billion that aig got, 60 billion went out the back door quickly, back door bailout. 14 billion went to goldman and others. aig was required to sign an agreement that was a total release to the counterparties. there were saddled with a gag order and could not talk about it. no, that is what the american system is like today. we have a real problem. during my term in afg we were nationalized twice, once in pakistan and once in iran. we went to the world court and got compensated on the iran issue. pakistan and that. he compensated us for that. if what i just described set aig happened in the upper world country i would be done washington pounding the table about what they had done. we are doing that by suing the u.s. government because what happened should not have happened. so that is what the environment is like today. we have the boards the taken over companies, ceos of lost a lot of power. of us sang -- are not setting an aggressive, a disgrace if attorney-general. started that process. and what happens to enron led to changes in the entire environment. we have to find a way back reasonable regulatory environment. >> well, quite a revving story. clearly a great concern in terms of the points issue that you have made and what impact these kinds of developments and circumstances will have and have had on the american economy. we're going to invite the audience, this very distinguished audience to pose questions, but will for you deal with led to begin to pick up on a critical point that you referenced. corporate governments. your referenced sarbanes oxley, dodd-frank is out there. in what kind of specific advice or recommendations would you have about the right balance on regulation at this time. i mean, you have a dodd-frank document that is several thousand pages. most of the people said they had never read it. what is the right balance. what is your advice? >> i think different degrees of corporate governance based upon size of the company and the businesses. you have a global company as an example. full-time directors full-time directors, they know what you tell them. and if you don't have confidence in the management unit company. yet to report to the board. yet have the information that they want and need. we never had that problem with the edgy. the directors came to the staff meetings. firsthand what was happening on a day-to-day basis. so you don't try to hold anything back to the directors. it has to be a confidence factor and you cannot frighten the director is by having laws and regulations that make them have to do things that they normally would not want to do. we -- the pendulum has swung so far in one direction. the relationships between the board and the ceo has become strained which is not the way should be. that is just the wrong hemisphere. you look, from the late 60's and tell, you know, 2005 it work better than better. it worked beautifully. so clearly we were doing something right. the get the oxide factors that brought this on. it was spitzer. the outside directors. there were not interested in the committee. there were interested in their own selves again. that is when it became obvious. better look at some of the attorney-general said in their country to make sure that they're under what they're supposed to do and know what they want to do. attorney-general is that use that office system to promote themselves, his successor was attorney-general, he got ambitions as well. is that the right kind of structure that you want? so corporate governance has changed. pendulum has swollen to far and interaction. have a hard look at what we what look. the government, go back to hell all this started on the real estate issues. fannie mae and freddie mac were urged to issue and buy more and more mortgages. the quality was secondary. geithner was the head of the new york fed. city was right in new york, right in his backyard. city noel was going on? did he just find that out later? how did you find out? supposed to have to examine as they're all the time. where were they? and so it's a lot of people who take the sec, the investment bank's. they have leverage with capital. why would you let that happen. they had six months between restaurants and what happened afterwards. what to the ever do? to blame industry, like the others and the other side of responsibilities. >> we have another question. >> will this carries parts is the fact that it took five years. what we do about that? this will be subject to political pressure. >> of course they have. look what happened within run. the awning firm went out of business. one of the biggest investors in the country. so the least to get out of there. >> what to do but it? >> we have to bring the pendulum back to center and not go wild. you were focused and obviously have the largest what advice would you give it to smaller companies. are you concerned about these developments in what it will mean for the american economy. american apparel company that is private we're growing nicely and expanding internationally, rapidly. it's a great company. it's going to be a greater company. we have great people. everything we did in writing aig. yes, i am concerned as to what has to be done. a big reason was tough at the government's level not to overkill the golden goose which is corporate america by regulating it out of business. that is what we're doing. more and more regulation. you terrier hands up and say, should be incorporated in the united states? there are certainly a lot of states that you don't want to be incorporated in. i would not recommend to any company to have your corporate headquarters in new york. it would be crazy to do that. .. [inaudible] [inaudible] [inaudible] >> would have been a series of. they just be a good risk management system. the guy running aig financial products told solo that we don't need to. the risk management people. we have our own. sullivan took down the risk managers that were supposed to be looking after aig. in fact, i would tell you what the book, the auditors went to the then ceo, bob leu and since sullivan and his number two, the cso are incapable of winning the cup me. they did nothing about it. >> we are three questions are going to take. let me begin with dmitry syme, president of the center. [inaudible] [inaudible] [inaudible] [inaudible] [inaudible] [inaudible] [inaudible] [inaudible] >> all right, thank you. any comments on not? >> we either have to get our house in order to have a balance between regulation and ceo to run his company and the management of the company. it won't work. >> we have your question asked of them will come right to you. >> delete a story about hanky-panky, no pun intended, hanky-panky on wall street. is this a growing trend? buries the reporting getting better? >> i'm not sure the so-called hanky-panky that you talk about turns out to be as bad as his sometimes been imported. you got to be specific in each of the things you read. many turn out to be not improper at all when you get done without. but what happens when you have an aggressive regulator tried to make a name for himself, he'll bring an action. he may lose it three to four years later. in the meantime he moves on and has a bigger job. we have a more complex world. don't believe everything you read that there was wrongdoing. there is some wrongdoing, but there's always that wrongdoing, whether in the financial world or otherwise. so i don't think -- i would come to that conclusion as you have. >> thank you. nice. mr. greenberg, trying to get this pendulum to swing back after your harrowing story, that would generate a lot of sense to me. i have to pose the question, what if we are talking about this abuse of governmental power is becoming further and further that it nrc's senate can be very difficult. by way of the legislation on notes on page 232 of your book come me talk about the causes of financial crisis and you alluded to earlier the government policy encouraging homeownership any talk about interest rates held too low for too long. here we are not too many years later with interest rates being held very, very low for a very, very long time. are we in danger of packing the american dream and economic system that makes it possible? >> we're looking at printing money every month. we are printing hundreds of billions of dollars monthly. we're going to pay a price for that is some point. there will be an inflationary boom that will scare everybody around. what's going to change? when you do people recognize that individual is a leader who can ring about change. it won't be easy. we have to change the attitude in congress. there's no free lunch. for ultimately going to pay the price for everything we are doing. when companies can't manage their business with being held to standards that nobody can live under, it is impossible. running a company that does business in 130 come in a come a unique somebody with lots of energy, noticed a business and is willing to do whatever it takes to make that company better after. that's what a good ceo does. that's their definition. and how are you going to attract people like that if you hold them accountable for things they have no control over? is used to be you have a board of directors with half-and-half, how can i come a half outside. then they passed a rule at the new york stock exchange after being pressured by government agencies to know that wasn't going to work. you have to have more outsiders than senators. then they took the next step is to deal the one that should be on the board of the ceo. incidentally, we want to have a meeting of the board without the ceo. they don't have business here but are they going to talk about? the right kind of tire where? you've got to have confidence between the board and ceo. once you've lost that, that's gone. he might he might as well give it a ceo or change the board, one of the other. how are they going to change it? it's going to take a leader in the white house congressional leadership to bring about a change. it wasn't dean over regulate and. that is not what does it. you want regulation, the regulation and people who are regulators who are not just determined to find fault. take a look at the regulation in the small country, a city state in singapore. the regulators are very bright .
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