people, overwhelmingly poor people of color into a permanent second-class status area as effectively as early systems of racial and social control once did. it is in my view the moral equivalent of jim crow. >> up next, maurice greenberg, talks about the rise and fall of the international insurance and financial products come me. this is about an hour. >> well, good evening to all of

you. i think we will get underway. first i'd like to welcome you to the center for national interest and think dimitri signs for bringing us together. i'd also like to welcome step for greenberg and i first want to thank you for your dedication to the center for many years, starting with its creation and development and advancement good your devoted time, energy, passion and substance to the center analysis is the center for the national interest in taking back for that. hank greenberg has also not only made substantial contribution to the center intellectually and in many capacities, but he also, as i think a number of enormous audience has made a substantial

contribution when you are vice chair of the foreign relations council. i have to mention that because i happen to be the head of the washington office, the council on foreign relations and my first meeting with hank greenberg was an interview. those of you who know the president at the time of cfr and pete peterson was the chair. sit in outside of hank's office and put the fear of god in me because were going in to meet with hank greenberg. user would not businessman, has made a tremendous remark on the development and rise of aig and he's very direct, very snappy, time efficient, no-nonsense and he told me, and make sure you are correct. look them right in the eye and get to the point. so i said i will. the good news is i got the job.

but that was my introduction to hank greenberg. as cnet today, we are gathered to mark congratulated by mad, hank on this book, "the aig story." the book i think really underpins what hank greenberg is about. in fact, i liked very much henry kissinger's inscription in the back in which he talks about your being truly a major figure in american 20th century, someone's who's principled, strongly committed and does not waver in one principles of the time of crisis. i think this story really undergirds 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 co., but then going on to become the head and ceo of aig, bringing it to what became, literally the largest insurance company in the world, with almost over a trillion dollars worth of assets. so there's the personal site, but there's also the other side of the story, which is a very instructive on and what will probert do especially today. that is the substantive side of this book, which specifically sets forth some very profound questions, profound and serious questions about government regulation in the financial industry. what are the income they tended consequences of this kind of regulation and what it does as in this case we witnessed the rise and fall of aig. what it does on the personal

level, organization and in this case a national asset for the united states. this is a must read and with that, i want to turn this to hank greenberg. please join me in welcoming him here today. [applause] >> pollock, thank you very much. i want to also recognize that dimitri though they may disorganization go. i live in new york. he's here in 10 and we talk quite frequently, that he's the man that spoke disorganization. no misunderstanding on that. i also want to recognize ambassadors in the philippines.

we worked together for many years. he read one of our biggest companies in the philippines and i'm delighted he's been recognized to be ambassador to the united states. why did i rate this book? a couple of reasons really. hundreds of thousands of people at aig who worked with me for years and i believe their story has to be told. when we went public we had $300 million of market value. when i left in march 2005, it was 180 billion. so we had great growth and i was accomplished by many, many people and their story had to be told. many have left aig and not get into that in a moment.

aig was an outgrowth of the star companies, the small collection that was put together. i join him in after seven years we added several insurance companies and take them public and something called aig. but the star companies were never part of aig. they founded aig and they were too small and i'm very thankful that we did that. [laughter] it made no sense to put them in at the time. we grew rather rapidly appeared several things in our genes when this girl from where we are to become the largest insurance company in history.

we were innovative, a typical insurance type of underrating or most of the businesses are either automobile or homeowners, with very little growth and anything that was new. other large lists were going to london and we believe we should be a market in the united states to accomplish that. on the life insurance site, but a small company in the philippines they didn't stay small for long but became very huge company in the philippines. as we did at other companies, with a company called alec of, american life and operated in many countries around the world. we brought a new addition to the

insurance industry, both in products, innovation and management structure. we introduce something i learned when i worked there was a great company. most companies have agency department at underrating department. at the end of the year, they always thought. if they lost money, what would play in the other end that went on and on. we introduced where one person was in charge of the marketing of it is so you knew who was accountable. there was no blaming anybody else. it is your accountability. that structure was so embedded in aig's thinking that the people who understood that flourished in a state of the company. those who couldn't live under that kind of a structure didn't want to be held accountable when asked to competitocompetito rs. that made us stronger and then

weaker and it works quite well. this operated worldwide. there's a culture culture of the company that culture doesn't happen automatically. you create a culture of the culture we had was a winning culture. the senior people work together really well and the board of directors initially at aig was made up of no sleep incite people running the country. but some very fine people at the time. all of that changed. the first part of the book touches on that. but they show what we meant to the country overall. there's a couple of vignettes i will talk about briefly. there is a book written on something called tacloban marine.

a book about a russian said that went down in the northwest pacific and the russians didn't know where wes. they looked and looked and couldn't find it. the u.s. to exactly where it was and wanted to recover it because it was a nuclear sub. codebooks were important than the technology was important. it was decided they would try and recover. there's a meeting in my apartment in new york with the general counsel of the eye it, the dpd howard hughes. if they were going to do that, they had to build the bustle, a large vessel with the whole of the center scoop this out. you had to think about what is

the russians decided but we were doing was looking for that been aware was pure but would have been if they fired on us? couldn't bring it to i.e. put it on the beach? that wasn't going to work? said they had to find some pacific island, build a port of the search area. we provided the insurance for that operation. there were many companies don't would have division or the skill, the underrating skill to take on a project like that. i have been to be when the operation is going on, is that a board meeting at aig's dirt areas would either call for the agency that "the los angeles times" had ripped the story

during the course of the recovery. obviously that didn't provide the kind of information we had, by his custom technologies that they had or didn't have. but there's one example. i was asked by a high government official to meet with president marcos who i knew very well because he had long relationship . served more terms as president and mrs. are permitted by law, declared martial law and state as long as he was alive. the revolution is possible.

mark gross was a. he was on dialysis. i did go out. admiral law, who had been the head of the naval forces had just retired came along with me. also john reid, the head of citigroup at that time had a big operation in the philippines. so we had dinner with the president and i decided i would wait until dinner was over. i think you ought to step down. nobody would believe that. you've overstayed. step down while you can.

so what have been? he went on, the election was held. there were uprisings in the country. the u.s. had to take about the helicopters and flew them to hawaii where he subsequently died. how many insurance companies that she does provide this kind of services to the country? there are many, many others. that's not the point of the book. the point of the book was to say how different we were and how valuable an asset we were to this country and thousands of people that made this possible. the second part of the book is what happens. we headed new york a disgraced attorney general who decided

that there is a law on the books called the part not enact it in 1821. it is designed to bootlickers, a doormat mahi dugout -- one of his staff to get out. silent as to intent. so if you could accuse somebody of the fraudulent act, he took the position to prove intent. so you can go after anybody who's made a mistake and force him into submission or to try out. had to use that against many companies who threw their hands up and agree to settle with them and pay huge fines. i wouldn't do that.

what happened is two things that were mentioned. i was on a conference call with security analysts and one asked me, was the regulatory environment like today? this is now after enron, when their lives a change in regulation in the united states. is that it's like a murder charge, trying to explain severity of the change in the regulatory environment. sarbanes-oxley brought about environments change in corporate governance. direct use of companies felt vulnerable and so they all wanted their employer represented them on a board. what happened is ceos have come to me is were downgraded and management of an institution. in some cases it may have been

good, many cases it was not good. when a board is trying to run a country after reading them 130 countries, with the management knows moment to moment what is going on, director is calm four times a year no matter how diligent they are it is rather difficult to have a detailed knowledge of what it is to take that company. they traveled on it constantly in the reporting is on a real-time basis. we knew what was happening. i could tell aag results by two days i would know anything about to know that the cub today. so throughout a quarter, we

would know how we were doing it every part of the world which operated in. so in the year 2000, we had consolidated a reinsurance company called transatlantic that we started the year before it had a 40% interest in wind up to over 50% in that year. i just come back from an overseas trip trying to catch a one of them said we're going to show at the lucrative production and reserves in the quarter. we had about 25 early in the property-casualty reserves that might be down 50 odd million and a quarter out of 25 billion. what does that mean?

when you are paying claims, it goes for reserve to pay. that's a normal process. the reserve comes down. the transatlantic that we would just consolidate had been paying catastrophe losses and said they were down about 40 a million of the 6 million. and that is an inconsequential number. i mean, one of my people say why don't we get a finite treaty, which essentially says you get premiums and loss is for reinsurer, for a finite period of time. in order to be counted as reinsurance, it has to have 1% risk factor.

look at 500 million premium of last reserves firmly warned that the company you happened to be our largest reinsurer. so it is logical. from ferguson, an honorable guy said he would check to see if they had the proper portfolio. he got back several days later and said we can do this. i was out of it after that. staff took over. i'd people follow up on that. so both it had become to me in virginia that had done the transaction that led to the

company's bankruptcy. the medical malpractice insurance company. the buffet was asked idg do any of these other deals? he referred back to the action we did five years ago that was approved every year by the auditors and gave this dispenser on the transaction that they had done. suspensory jumps on this transaction. he did no research on premium. he had no knowledge of any of that. but he used it to bludgeon the board and my friend sitting here was on the board at the time, a

standup person i might say. he and carla hills, who is on the board, the only two who fought the silliness that was presented and approved this for five years in a row but withdrew their approval. if the auditors don't sign off, that causes a little shakiness in the value of the company and we were a aaa rated company with the highest ratings in the growth pattern that is the envy of the whole industry. and it was clear that spitzer was going to demand my head. this change in corporate governance really became a great role of what happened was

unbelievable. there was a meeting held uptown. beattie was the head of the firm and a good friend of spitzer. he was a jogging partner. and the other lawyer firm, which is a corporate lawyer for aig. he'd been an associate. so it's really evenhanded you could tell. so they had a meeting and decided i should step down. this was in march.

which i thought was a reasonable thing to do. they could remain as chair and i said no, i wouldn't do that. they said you can stay as chair. i decided how to make a foreign ship to malaysia and china. i was not going to remain as chair. i asked david boyd who represented me to write a letter of my resignation. i know that bill can't asked the auditors, for example, does this transaction affects shareholders equity and he said no, it does not. but we can't do that now. it was clear they were getting pressure from their office.

he asked, will circle that, so what's the difference? he wouldn't do it. so it was clear that spitzer had one aig over. they then paid spitzer a billion $600 fine. that led then to class-action. that led then to class-action suits for several billion dollars more. so you think about what this man did. he went on national television and accused me of criminal fraud without ever having indicted me are presenting any evidence that i did anything wrong.

john wrote an op-ed in "the wall street journal", commenting how can attorney general do this to one of america's leading ceos? spitzer called him and threatened him after that. so clearly what happened in corporate america is that boards last enormous power. ceos last enormous power. bortz took over more and more responsibility. is that good for american business? is that good for the economy? is one of the reasons i've written this book because i do think we are at a crossroads. i think it is disgraceful of what they've done. they've tried to get me to settle any number of times. i would not do that.

we are in the court of appeals. the highest court has determined whether or not the martin act is currently written and currently being used is constitutionally proper. it can't be enough to prove you've done something wrong. i was so far away from the transaction at the justice department with jimmy for five years and said nothing we can do. but that has led to the first part of aig's destruction. so after that, now you go on his strengths, but also on the risk management controls we had in

the company would disassemble. we have enterprise risk management system, one of the first ever put together and it's been claimed aig hasnd it's been claimed aig has so many different countries and diverse, how could anybody management? diversification is good, not bad. diversification is a property strategy for a comp any with geographical diversification and business diversification. , ..

>> one of their top risk managers left the fed. i hired him. he put together a great risk management structure for the nine insurance entities. we had second large company in the world. i sod buster salty china. for a bout $25 billion loss on their books. great step forward. but we had a great system.

that was abandoned. they begin taking on more and more risky, called cdf, credit default swaps, covering these cdos, packages of mortgages. would dwell on that for a moment. these cdos were put together by investment banks and banks, and supposedly had been rated by the rating agencies. you haven't the -- after de-clutter, this is a aaa rating portfolio before you write a credit default swap on the. you want to know what your insurance in -- what you are ensuring eventually most of it was aaa that they had very good mortgage content in them. they turned out to be triple garbage. and so why would 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. they weren't required to put up collateral as long as they were aaa. we had been aaa for as long as i can remember. so i kept on coming up with collateral. now the problem is there was no price discovery on these cdos. there was no market to be traded on that, stock on the stock market. so every broker-dealer had a different price for the same cdo. so why would you respond to a collateral call? you couldn't at the same price for many of the others. why would you respond to them? i wouldn't have.

i wouldn't have responded at all. so when things got hot and aig was running out of liquidity, they weren't insolvent. they had plenty of solvency. they had close to a trillion dollars of assets. so it reached a point where aig needed -- the markets all those. you couldn't borrow any money any place. and so by then a man called william scott came from citigroup, is running the company. i knew him quite well. we were friendly. i try to help in any way i possibly could. so he calls the new york fed and says i need access to the fed window. they refused. and he kept on badgering them. let me get a broke of your license to give me access. they refused.

goldman sachs, they cannot a bank holding company licensed, morgan stanley got a bank holding company licensed. they got immediate access to the fed window. there was an insurance company in hartford that said go out and buy a small bank for $10 million, which they did. they had access to the fed window. aig was denied access to any government-funded. finally, olson calls -- hank paulson calls and says we're going to give you one plan, take it or leave it. this is the second day of the treasury. give you $85 million at 14.5 percentages to anybody who is barred from the fed when it is barring at about one and a half to 2%. and what we want we will take,

79.5% of the equity. of the company. and incidentally you're fired. i'm putting in somebody else. somebody else happened to be ted ligety goes on the goldman board. so he asked to sign the agreement that he had just told about connie said i'm not going to summit, you just fired me. so he signed the agreement, resigned to the board retroactively three days later. i've never heard of the secretary of the treasury in the united states calling a company ceo and firing him. it's the job of the board of directors. not the secretary of the treasury. and to have a goldman director do it. because of the $85 billion that was aig got, 60 billion went out

the back door quickly, backdoor bailout, 14 billion went to goldman sachs and others. and aig was required to sign an agreement, now, a total release to the counterparties and they were saddled with a gag order, could not talk about it. now, that's what the anakin system was like. we've got real problems. during my term, my term at aig we were nationalized twice. once in iran and once in pakistan. we got compensated both cases. i went to the world court and we got compensated on the iran issue at and pakistan, i met with bhutto, the national

institute, he compensated us. this, i just described happen in a third world country, i would be down in washington pounding the table about what they have done to companies. and we are doing that by suing the u.s. government in the court of claims. because what happened should not have happened. and so that's what the environment is like today. we have -- boards have taken over companies. ceos have lost a lot of power. i'm not saying they were all wrong or right. all i can tell you is my experience with an aggressive disgraced attorney general that started that process, and then what happened to enron that led

to changes in the entire environment. we've got to find our way back to a reasonable regulatory environment that encourages business, not discourages business. i'm going to stop here. spent quite a riveting story, and also one that is clearly of great concern in terms of the points you have made. and what impact these kinds of developments and circumstances will have and have been on the american economy. we're going to invite the audience can this very distinguished audience to pose questions. before you i would like to begin to pick up on a critical point that you referenced on corporate governance. you referenced sarbanes-oxley are clearly dodd-frank is out there. what kind of specific advice or recommendations would you have about what's the right balance on regulation? at this time.

i mean, you have a dodd-frank document that's several thousand pages, and most of the people say they have never read it. but what is the right balance? what is your advice? >> well, i think a company, different degrees of corporate governance, based upon size of the company, and the businesses that it's in. if you have a global company, as an example, in different types of businesses, you have to rely on management. because i don't care how good your directors are endless they will be full-time directives working most of the time at the company, what are they going to know? they know what you tell them. and if you don't have confidence in the management, then get rid of the management and get a new ceo. yes, you have, i visit you have

to report to the board -- obviously you have to report to the board. not all report but they have to have information that they want and need but you can't have been trying to second-guess the management of the company. trying to second-guess them, get rid of them now if you don't trust them. we never had that problem at aig. anything a director wanted we invited the director to come to the senior staff meetings that we held so they could sit in and hear firsthand what was happening on a day-to-day basis. so you don't try to hold anything back from the director. there's got to be a confidence factor, and you can't frighten the directory by having laws and regulations that make them have to do things that they normally would not want to do. i mean, the pendulum has swung so far in one direction that

come you know, the relationship between the board and the ceo has become strained. that's not the way it should be. that's just the wrong atmosphe atmosphere. you know, from the late '60s until 2005, it worked better than better. i think and it worked beautifully. so clearly we're doing something right. look at the outside factors that brought this on. in aig's case it was spitzer, and then the outside directors, wanted their own voice but they weren't interested -- they were interested in their own self dispute. that became obvious. and we better look at some of the attorney general's in our country to make sure they are doing what they are supposedly,

not what they want to do. attorney general's that use that office just to promote themselves, spitzer's successor was attorney general, global. they got a guy, snyderman. he had ambitions as well. is that the right kind of structure that you want? so corporate governance has changed. too far in one direction and i think we have to get back and have a hard look at what we want. book, the government, go back to all this started on the real estate issues. fannie mae and freddie mac were urged to issue and by more and more mortgages. the quality with secondary. geithner was the head of the new york fed. citigroup is in new york, right

in his backyard. did he know what was going on at citigroup? did you just find that out later? how did he find out? supposed to have examiners there all the time. where were they? and so, you know, there's a lot of people take the sec, the investment banks, goldman sachs and morgan stanley and others, lehman, had 40 to one leverage of capital. why would you let that happen? they had six months between bear stearns problems and what happened afterwards. there was six months. what did the government do during that six-month? and so to blame industry, look at the others on the other side who have responsibilities that they failed.

spent we have another question. let's go to dov zakheim. >> scary story, one of the scariest parts, the fact that the auditors had five years. every company, and every board relies on what the auditors tell them. what do we do about that? on me, if auditors are going to be subject to political pressure, we've got a huge problem. >> of course there. look what happened at enron. the auditing firm went out of business. one of the biggest and best in the country. the least thing to blink and they're out of there. spent what are we going to do about it? >> we've got to bring the

pendulum back to the center. and not the one an thing that ey company is somehow crooked. that's not the case. spent let me pick up on the point that you made in the first question. you were also focused and, obviously, you had the largest going you at the helm of the largest insurance company in history. what advice would you give to smaller companies? are you concerned about these developers and what it's going to mean for the american economy? >> of course i'm concerned. look, i'm running a company not that is private and not going to go public. [laughter] and we're growing nicely, and we're expanding internationally rapidly. it's a great company. and it's going to be a greater company. we have great people, right culture, everything we do in running aig. yes, i'm concerned, paula, as to

what has to be done. i think we need some wisdom really at the governmental level, not to overkill the golden goose, which is corporate america, by regulating it out of business. that's what we are doing. we're going to have such more and more regulation that come you know, you throw your hands up and say should i be incorporated in the united states. there's certainly a lot of states that if you want to be incorporated in. i mean, i wouldn't recommend to any company have your corporate headquarters in new york as long as they have the market. you would be crazy to do that. >> let's go to the filipino ambassador to the u.s. >> [inaudible] he was the one

who hired me when i step down as governor of the central bank. i have one question. aig took pride in its risk management, and they had their internal audit. what i can't understand is how the financial products were getting away with booking $440 billion, with aig had $104 billion, which is four times -- [inaudible]. what happened to the risk management? what happened to the audit committee board? these are the questions i can't

really ask. i did ask the head of, he said he did bring this up to the ceo. but apparently he did not listen. >> what happened is very simple. they disbanded the risk management system. the guy running aig financial products told sullivan, we don't need them. the risk management people. we have our own. and sullivan took down the risk managers on that were supposed to be looking after aig. in fact, i would tell you it's in the book. of the auditors went to the then ceo, bob, and said sullivan and his number two, the cfo, are incapable of running the company. they did nothing about it.

>> we have three questions here let me begin with the me treaty -- dimitri. >> life is stranger than fiction. [inaudible] we are very grateful. [inaudible] mr. spitzer's company was -- [inaudible]. began to break down.

[inaudible] security was aborted. right in the lobby area. [inaudible] mr. spitzer begin charging for this, and also started charging us. they said welcoming no, that is the way it is. and when i asked what -- was

mr. spitzer aware of our concern, mr. spitzer was well aware of our concerns. but he still wants to do away with it. mr. spitzer was indeed aware of the concerns. let me say this profoundly -- [inaudible] when i look at aig, when i look at the thousands of people who worked for you and you instantly became millionaires because of aig stock under your leadership, and we know what happened to aig stock actively. and that incidentally was middle-class. the great american middle class who really would do well because they were associate with a great company who have done great things. we don't need more nationbuilding. what we need is to allow

american companies and the american people do what they do best, and what made this country great. what i'm trying to say -- [inaudible] but the bottom line is, total power to the government is very rarely ends well. [inaudible] >> thank you. any comment on that? >> of course i agree with dimitri. look, we there have to get our house in order and have a better balance between regulation and the freedom of the ceos to run his company or her company and the board of directors is supported, not antagonistic to the manager of the company. you can't have it. it won't work.

>> it seems to me it's almost impossible these days to pick up the financial times or "the wall street journal" without reading the latest story about hanky-panky, no pun intended. hanky-panky on wall street. is this a growing trend? hasn't always been that way? or is the reporting getting better? >> i think it may be a little bit of both. you know, i'm not sure that the so-called hanky-panky as you talk about, it turns out to be as bad as it sometimes has been reported. you know, you've got to be specific in each of these things that you read. many of them turn out to be not improper at all when you get done with it. so what happens, when you have an aggressive regulator that's trying to make a name for himself, he will bring in

action. he may lose it three or four years later, in the meantime he moves on and has a bigger job. i think, and we have a more complex world. you know, don't believe everything you read that there was wrongdoing. there is some wrongdoing, but there's always been some wrongdoing. whether it's in the financial world or otherwise. so i wouldn't come you know, i don't think that, i wouldn't come to that conclusion as you have a. the. >> our final question before we close. >> you talked about trying to get the pendulum to swing back, and after your harrowing story, that would generate a lot of sympathy. but i have to pose the question, what if what we're talking here, this abuse of governmental power is really becoming further and

further embedded in our system and it's going to be very difficult to get any kind of appearing mid dashing any kind of pendulum. by way of illustration i will note on page 232 of your book, you talk about the causes of the financial crisis in 2008 and 2009. talk about the government policies in terms of homeownership and vinegar can you talk about interest rates held too low for too long. here we are not too many years later where interest rates are being held very, very low for a very, very long time. are we learning anything and are we in danger in fact of attacking the american dream and economic system? >> i think we are. not only are we holding interest rates can we are printing money every month. we are printing hundreds of billions of dollars monthly and then we're going to pay a price for that at some point. there'll be an inflationary boom that's going to scare everybody around. what's going to change? we need a leader and people

recognize that individual as a leader who can bring about change. it won't be easy. we're going to have to change the attitude in congress. there's no free lunch. we're going to pay a price for everything we are doing. when companies can't manage their business, when they are being held to standards that nobody can live under, that's impossible. running a company that does business in 130 countries, let me tell you, that's a full-time job, okay? you need somebody with lots of energy, who knows their business, and is willing to do whatever it takes to make that company better and better and better. that's what a good ceo does. that's the definition. and how are we -- how are you going to attract people like

that if you're going to hold them accountable for things that they have no control over? you know, it used to be that you have a board of directors, maybe half-and-half, half in fact, have outside. then th that that several of the new york stock exchange after being pressured by government agencies -- know, that wasn't going to work together to have more outsiders than insiders. then he took the next step and said the only one is to be on the board really as ceo. and incidentally, we want to the meeting of the board without the ceo. what the hell do they talk about? they don't have visited what are they going to talk about? wearing a right kind of tired or what? and so that's got to change. you've got to have confidence between the board and the ceo. once you have lost that, that's gone. you might as well get rid of the

ceo or change the board, one or the other, or both. and how are we going to change it? it's going to take a leader in the white house, and congressional leadership, to bring about a change. what made america great? it wasn't being overregulated. that's not what does it. you want regulation but proper regulation. angel of people who are regulators who are not just determined to find fault. take a look at the regulations in the small countries, city state in singapore. the regulators are very bright people, and how do they get bright people? they pay them enough. so you attract very good people. we've got to change our

structure because we are killing the very thing that made this great. i wrote this book, not anything that i hope to get out of it. i hope to awaken people to what the hell happened. we can't -- what are we going to look like? >> well, truly an icon of american business. this book, "the aig story," is a must-read for those who are concerned and care about the unintended consequences of governmental regulation on industry, particularly financial institutions and the future of the american economy. thank you for coming today. [applause] >> booktv is on