Boies explained that in the midst of the approaching calamity, his client, Hank Greenberg, had made repeated offers to help. Indeed, his history with the company and his position as its largest shareholder positioned him perfectly to do so. Boies described the letter Greenberg had written to Willumstad as a kind of final appeal that had also been ignored. I perused the text of the letter and found it quite extraordinary. In part it read:
Dear Bob:
We have been discussing for several weeks my offer to assist the company in any way that you and the Board desired. Throughout these discussions, you have told me and David Boies that you believed that my assistance was important to the company. The only concern that you have expressed to me is the fear that if I were to become an advisor to the company that I would “overshadow” you. I respectfully suggest to you, and to the Board, that the continuing refusal to work together to save this great company is far more important than any concern over personal positions or perceptions.
In little over a year, I and other shareholders, have watched the company that I helped build over 35 years into the largest and most successful insurance company in history and one of the most profitable financial companies in the world lose over 90% of its value…Over the last two weeks as the threats to the company increased, I have made repeated requests to meet with you and to meet with the Board to offer my suggestions and help. Those requests have been ignored.
Since you became Chairman of AIG, you and the Board have presided over the virtual destruction of shareholder value built up over 35 years. It is not my intention to try to point fingers or be critical. My only point is that under the circumstances, I am truly bewildered at the unwillingness of you and the Board to accept my help.
Hank
“He just wants to help,” Boies said. “He’s trying to salvage the company he built.” He shook his head with disgust. “One would think,” he said, “given his shareholdings, the company would want to talk to him.”
I had to agree that it made sense for AIG to consult with him. This was crisis time, and not only did Greenberg hold substantial stock in AIG, he built this company, he knew where the bodies were buried, and he remained close to a number of investors who were of like mind. When I reached Greenberg himself for comment, he told me that he and a group of investors were interested in working with AIG and the Feds on a solution that didn’t involve such a big infusion of money. “I would ask for less than $85 billion,” he said. “I’d sell assets, do other things to reduce the amount.” He told me he had ideas and was willing to serve. But no one was calling.
Greenberg later told me that he would have done everything he could—including perhaps tapping his connections in China and elsewhere—to keep the government out of AIG. And he was suspicious of the terms, which called for the government to pay 100 cents on the dollar to AIG counterparties, chief among them Goldman Sachs. He fumed that the bailout seemed to have as much to do with saving Goldman Sachs as with saving AIG and “the system.”
In Washington, Paulson was busy explaining to a nervous White House why the bailout was necessary and why AIG was being saved when Lehman had been allowed to wither. “There is a difference between a capital problem and a liquidity problem,” Paulson said, noting that AIG had subsidiaries that could be sold to raise capital. The problem was, once the word was out that AIG was in desperate need of cash, the values on those subsidiaries would begin to drop, and it would be tough to raise the money expected.
By Wednesday the deal was all but done. The government would bail out AIG for $85 billion and assume an 80 percent ownership in the company. (Ultimately, the government would shovel $182 billion into AIG.) In effect, the government now owned AIG. Willumstad would be replaced by Ed Liddy, the retired CEO of Allstate, for the yearly cash compensation of one dollar.
I spoke with Liddy immediately after the announcement. “I feel energized,” he said. “I think I can help. I’d like to help this company. I think I can help the country.” He seemed deeply sincere and committed to the task.
“But how did this happen?” I asked. “Can you explain how the largest insurance company in the world was actually exploring bankruptcy last weekend?”
“There’s a lot of glory to go around,” Liddy joked, then turned serious. “Insurance is the oxygen of free enterprise. Nothing can happen without insurance. AIG is interconnected. It touches too many other institutions. Some of the largest banks in the world are carrying credit default swaps, and AIG is insuring them.” Reflecting on the image of oxygen, I hoped that AIG and the rest of the financial
