From the hand-wringing tone of today’s New York Times piece about AIG founder Maurice “Hank” Greenberg’s new venture, an AIG manqué named C.V. Starr, one might think that the 84-year-old businessman was plotting to undermine the taxpayer — and perhaps America itself — instead of merely starting up a functional insurance business. Warns the Times:
“While America generally loves stories of entrepreneurs making a comeback, Mr. Greenberg’s success may be at the expense of taxpayers. People who work in the industry say that if he is already luring A.I.G.’s people, he may soon be siphoning off its business and, therefore, its means to repay its debt to the government.”
But let’s back up a second. For starters, according to a statement from C.V. Starr today, Greenberg has only managed to “lure” thirteen former AIG employees to his stable, which, out of more than 100,000 worldwide, seems like pretty small potatoes.
And what is this company going to do, exactly? According to the paper, it will “focus on the specialized lines of business insurance that once made A.I.G. stand out,” “taking on the same form as A.I.G.— an intricate group of companies, each with its own line of business,” and insuring things “as diverse as wayward corporate directors and construction accidents on the bridges and roads being built under the Obama administration’s fiscal stimulus program.”
WHAT? You tell us he means to start a company that will insure the building of roads? Someone stop this man and his crazy capitalism!
Sure, Greenberg’s history isn’t purely clean — there was that whole accounting scandal — and of course he’s in this for himself. “As far as free-market capitalism goes, I don’t blame him for what he’s doing,” Joseph Devlin, assistant dean and professor at the Massachusetts School of Law at Andover, tells Intel. “I don’t think he’s doing it for any reason but to benefit himself financially. He’s trying to do what entrepreneurs do and make money.”
And Greenberg still owns 12 percent of AIG — and his micromanaging oversight is what kept the financial-products unit from taking too much risk like it did after he left — so it’s unlikely he wants to take the place down. And it’s not like he’s starting up another Wall Street factory to churn out derivatives. From the description, it doesn’t actually sound like C.V. Starr is going to compete with AIG. Primarily, it seems like it’s going to act as an insurance broker, which is different from and complementary to what AIG does.
In reality, AIG’s staffing problems have little to do with what Hank Greenberg does. Employees there have been walking out the door ever since the government signed the adoption papers. Forty managers have quit since September 2008. And can you blame them? What with the House’s proposal of an absurd, possibly unconstitutional 90 percent bonus tax, Senator Charles Grassley’s suggestion that the firm’s executives should kill themselves, vitriolic protesters showing up in front of their houses by the busload, and the salary-slashing machinations of pay czar Kenneth Feinberg? Even the government-installed CEO, Edward Liddy, handed in an exasperated surprise resignation a few months ago.
But the most surprising part of the Times story, to our minds, is the notion that AIG has ever had or will ever have had the means to repay its debt to the government. It doesn’t, and it won’t. Even the Government Accounting Office recently took a look at the deep-in-hock insurer, which owes the government $121 billion, and ruled “yeah, never gonna happen.”
This is true even though the government, which owns 80 percent of AIG, has done everything possible to stack the deck in the company’s favor: The Treasury and the Federal Reserve have already lavished the insurer with breaks on loan terms and dividends and entertained the possibility of easing the insurer’s bailout terms. But progress is elusive, especially as long as AIG sells businesses like AIG Asset Management, with $89 billion in assets under management, for a paltry $500 million.
AIG illustrates that, amid these bailouts, the government has been unable to understand the dynamics of competition in capitalism. It’s sobering to think that the government assumed AIG would survive as long as there was no strong competition. Of course: There’s only one federal government, so voters can’t vote everyone out of office in a wholesale rejection of its methods. But rivals and competitors can destroy a company that can’t stand on its own two feet. And that’s fair game.