All the Devils Are Here [45]
In a follow-up report issued in 1996, the GAO explained, in one clear sentence, why it thought differently about this issue than everyone else: “Past experience has shown that firms can develop serious problems before the marketplace knows about them.”
There is one final piece to this story. That fifteenth company, the one that refused to participate in the GAO’s survey, was the insurance company American International Group, known on the Street simply by its acronym: AIG. “We got this call saying they couldn’t help us, but at some point they’d explain that,” Bowsher remembers. At that time, AIG was a relatively small player, with a derivatives desk one-third the size of Goldman Sachs’s, which was the biggest derivatives dealer among the investment banks. But the GAO team knew that AIG’s business was growing rapidly.
After the report was complete, Bowsher and Bothwell made it a point to go talk to all the CEOs in person, AIG included. They set up an appointment with AIG’s chief executive, Hank Greenberg, and were summoned to his office on Wall Street, where they waited and waited in an anteroom. Bowsher wasn’t bothered by the wait—he was used to imperial CEOs—and during their meeting he found Greenberg both candid and smart. At least, unlike the others, Greenberg never said the GAO report was stupid. What he did say was that he hadn’t wanted to talk to them because he’d been having trouble with the person who ran his derivatives business. There had been big losses and a battle over control, but Greenberg had fixed all that. He’d “gotten rid of that person, and taken the losses,” Bowsher recalls him saying. And now, Greenberg said, derivatives weren’t something he had to worry about anymore.
5
A Nice Little BISTRO
In 1994, the year of that meeting with Bowsher and Bothwell, Maurice R. “Hank” Greenberg was sixty-nine years old and had been the chief executive of AIG for a remarkable twenty-six years. Perhaps even more remarkable, despite his age and the length of his tenure, he showed no signs of slowing down. He had no succession plan, and zero interest in creating one. Two of his sons had become high-ranking executives at AIG and were often mentioned as potential successors. Both eventually left to run other insurance companies once they realized that Greenberg was never going to give them the keys to the kingdom. He was dominant, brilliant, irascible, short tempered, controlling, obsessive—and by far the most successful insurance executive of his era, and perhaps any era. Since 1968, when AIG’s founder, C. V. Starr, catapulted him over two higher-ranking executives to be the CEO, he had transformed Starr’s company—which had been founded in Shanghai nearly fifty years earlier—from a quirky, privately held firm into the largest insurance company in the world. It had a stock price that outpaced its competitors, a reputation for treading where others wouldn’t, and earnings growth so steady—topping $2 billion a year by the mid-1990s—that it was the envy of the industry. AIG wasn’t just Greenberg’s company; it was his creation, his baby, his sun and his moon and his stars. People sometimes joked that he planned to run it from the grave.
The son of a taxi driver from the Bronx, Greenberg was as up-by-his-bootstraps as a twentieth-century