March 5, 2009: Three days after AIG announces a record-breaking $61.7 billion quarterly loss—and Obama announces another $30 billion in aid—the president learns it’s about to pay $165 million in bonuses in the financial products unit that brought down the company
To some people, AIG’s (AIG) collapse was a bigger shock than Lehman. What about for you?
Remember, I wasn’t running it at that point. When I left in 2005, we were AAA-rated. We had risk controls in place. We met every week and there was special time allotted for AIG Financial Products. They did as much credit-default swaps in the nine months after I left as in the seven years we’d been doing that business.
So what went wrong?
It was quite common to lend securities to banks. We made about three to five or six basis points. When I left, some genius decided they were going to get multiples of that. They found banks willing to pay many times more, and when those banks ran into trouble, there were defaults.
As a major shareholder, did you have some inkling of problems brewing?
Yeah, there were some. They lost the AAA rating. That itself should have been a warning because it meant you had to post collateral. I would have discontinued some businesses. Instead, they were built up.
Did you try to save AIG?
When it was clear they were facing liquidity problems, I had discussions with [Timothy] Geithner and offered to help. I had dinner with [former CEO Robert] Willumstad and offered to help. I offered to try to raise funds for them in a number of parts of the world. That was never acted on. I found out about the terms of the bailout when everyone else did.
You’re suing the government over its $182 billion bailout and recently won the right to question Federal Reserve Chairman Ben Bernanke. How important is he to your case?
I can’t talk about that now. When we take depositions, a lot of facts will come out.
Let’s step back. Given where we are now, what do you make of Washington’s overall reaction to the crisis?
Government doesn’t create jobs. It needs to create laws that enable the private sector to do that. If we move to policy that’s more on the social side than the free-market side, we’ll never be the country that we were. Government-created jobs may give you a nice income, but you’ll never hit the ball out of the park.
You think we’ve lost the ability to hit it out of the park?
I don’t think we’ve lost the ability. But there’s a lot of regulation that makes it almost impossible to hit more than singles. Congress has to get its act together. This has been a very slow and fragile recovery.
It’s hard to think of anyone from that period who’s been unscathed in terms of reputation. Even Jamie Dimon, who came out a hero, has since been hit.
We’ve vilified business leaders who are responsible for the growth in the economy, and we’ve vilified them over what? Bear Stearns essentially was forced on JPMorgan (JPM). To now go ahead and accuse them of wrongdoing bewilders me.
OK, let’s make you the president. What’s your next move?
To start, I don’t think that having the government go further into debt is a solution. You can’t have a policy that’s just austerity. People need to have hope and opportunity. You need a balance. But the outcome can’t be to increase debt ad infinitum. What are you leaving your children and grandchildren? How the hell do they work the way out of it?
So what have we learned in the past five years?
There are a lot of things we’ve hopefully learned. The desire to have everybody own a home meant the qualifications for homeownership virtually disappeared. That’s changed. But you can’t freeze up in reaction. The next crisis won’t look like the last one. If we have intelligent rules and a strong economy, we’ll be in a better position to handle it.