bailout case that we're going to see. the aig story.

>> good evening to all of you. first, i would like to welcome you to the center for national interest. i would also like to welcome mr. bloomberg to the center. starting at its development and

advancement, devoting time and energy and passion to the center. so i thank you for that. hank has not only made a contribution, but he also, as i think a number of you know, has made a contribution when your vice chair on foreign relations. i had to mention that because i happen to be ahead of the washington office. my first meeting was an interview. pete peterson was the chair. so the this actually put the

fear of god in me. because he said we are going in to meet with mr. greenberg. and he said, you know what, he is very direct, he is very snappy, time efficient, no-nonsense, he will look you in the eye. look them in the eye and get to the point. well, the good news is, i got the job. and that was my introduction to hank greenberg. well, we are gathered today to honor and congratulate hank on his book. the aig story. i like very much henry kissinger 's inscription in the back, in which he talks about

being a major figure in the 20th century, someone who is principle, does not waver on one's principles in a time of crisis. i think this story substantiate that. the book is not only a chronicle of a personal story, starting with his departure from being in army officer in the korean war and his entry into the insurance industry. but then going on to become the head of aig. bringing it to what became literally the largest insurance company in the world with almost over $8 trillion. there is the personal side. but there is also the other side of the story, which is a very

instructive one. that is the site of this book specifically set forth very profound and serious questions about governments and regulation in the financial industry. what are the unintended consequences of these regulations? and what does it include? well, what it does on the personal level, it is truly a national asset for the united states. with that, i want to turn it to hank greenberg. please join me in welcoming here today. [applause] >> thank you very much.

i also want to recognize dmitri who has made this organization go. i live in new york, he's here in washington. i try to talk quite frequently. and he is a man that is part of the organization. i want to recognize that we worked together for many years. one of the biggest companies in the philippines, i am delighted that he has been recognized to be the ambassador. now, why did i write this book. well, for a couple of reasons. one is there are hundreds of thousands of people who worked

with me for years. and i believe that this story needs to be told. when we made public we have $300 million of market value when i left at the end of march 2005. it was 180 billion. so we had some great growth. and it was accomplished by many people. many have left aig. and i will get into that in a moment. they were an outgrowth of this company. i join him and i succeeded him. we had added several insurance companies and the stock companies were never part of it.

they were kept out because they were too small to really put into it. i am very thankful that we did that. [laughter] it made no sense to put them in at the time. we grew rather rapidly. there are several things that we have that made us the largest insurance company in history. but if you want to call us mavericks, you can cause that. we had the typical traditional insurance underwriting. most of the business was either automobile or homeowners and we had very real growth. we believe that we should be

market in the united states that could accomplish that. on the life insurance side, we had a small company in the philippines. it became a very huge company in the philippines. we have something called amoco, and it operated in many countries around the world. we brought a new vision to the insurance industry. both the products and innovation and management structure. we introduced something that didn't work, and most companies had an agency department and underwriting department. at the end of the year, they lost money, they just went on and on.

we had one individual is was in charge of products and marketing. so you knew that there was not breathing anyone else, it was accountability. that structure was so embedded in the thinking, the people who understood it stayed with the company. they did not want to be held accountable. it worked quite well. and there was a culture in the company. it doesn't happen automatically, but you created. the culture that we had was a winning culture. i've seen people work together very well. the board of directors initially

was made up of mostly inside people who were running the company. we had some outside and very fine people. to show really what we meant to the country overall, there are a couple of vignettes that i will talk about briefly. there was a book written and there was a book about a russian sub that went down in the northwest pacific. the russians didn't know what it was. they looked and couldn't find it. in the u.s. knew exactly what it wants. it was a nuclear sub, the technology was important.

it was decided that they would try to recover this. they had to build a vessel, a very large vessel with a hole in the center. the guy would scoop the sub up and you have to think about letting the russians decide what you are doing. and what would happen if they fired. so that wasn't going to work. so we had to have this in u.s. possession and discharge it

there. so we provided the insurance to the operations. there were not many to take on a project like that. i was in hong kong at a board meeting with aig when i had a call from the agency the los angeles times i broke a story obviously, they didn't provide the kind of information that we had, and there is one example that aig value to the company. there are many stories like

that. i was asked by government officials to go out and meet with an individual that we know very well. and he had more terms as president and he was permitted by law. at times he was aggressive, one individual was ill. he was on dialysis. and we did go out and the individual that had been a head of the naval forces came along. and so john reid, who had been the head of citigroup at that

time, we had dinner with him. i decided i would wait until dinner was over. and that way we wanted to step down at the top of his game, it could be done. but nobody would believe that. the country was in on that. the step down while you can. what happened was he went on, things went all to heck, they said he was going to die. now, how many insurance companies that you know of provide those kinds of services to the country?

well, there are many others as well. point of the book was to say how different and valuable we were to this country. and the thousands of people have made that possible. the second part of the book is what happens. we had a disgraced attorney general. one who decided that there was a law on the books called the martin act, it was an act of 1921. it was designed to go after bootleggers. one of the staff had dug it out. so if you could accuse somebody of a fraudulent act, he took the

position to prove it. so you can go after anybody who made a mistake in something or another. and force them into submission were to go to trial. he used that against many companies who threw their hands up and just agreed to settle and pay the fines. now, i would not do that. when i was on a conference call with security analysts and one asked me what is the regulatory environment like today, this is after enron. when there was a change in regulation in the united states. and i said, it is like a murder charge, trying to explain the

severity of the change in the regulatory environment. enormous change. directors of companies felt horrible. so they wanted their own lawyer representing them. what happened is the ceos of companies are being downgraded in the management of an institution. in some cases it may have been good in other cases it was not. and they went abroad operating in 130 countries. no matter how diligent they are.

and the management traveled constantly. the reporting was on a real-time basis. i could tell the results and by today's i would know anything wants to know about the company. so in the quarter, we would know how we were doing. so when there was, i think in the year 2000, we have consolidated and insurance company. we had started and we had about a 40% interest. and we've been up to over 50% in

that year. i had just come back from an overseas trip trying to catch up with my senior managers in what was happening. and one of them said that we are going to show a little bit of reduction in the quarter. and we had about 25 billion of property taxes and we might be down 50 some million in the quarter. now, wouldn't that mean? a means when you are paying claims, you know, you have to pay, that is the normal process. with the transplant that we had just consolidated, they were down about 40 odd million of the 56 million. that isn't inconsequential

number. i mean, it is nothing. one of my people says, why don't we get a finite reinsurance treaty, which essentially says that this is common in the insurance industry. we have premiums and losses from a reinsurer for a finite time. in order to be counted as reinsurance, we have to have a 1% risk factor. 1%. so we got that done. whatever the number was from warren buffett company. they happen to be the largest reinsurer. so it's logical to talk with them and i made a call to an individual that i knew very

well. and he said he would check to see if they had the proper portfolio. he got back and said yes, we can do this. so the stack took over. i have people follow up on all of it. the warren buffett had a company in virginia that have done a transaction that led to that company and their bankruptcy. the two top people went to jail for medical medical malpractice. so he was asked, did you do any of these other deals. so he referred back to the transaction five years ago that was approved. and he gave all the transactions

they had done. so he jumps on this transaction. he didn't know reserves from premium. and he had no knowledge of any of that. and he uses that to bludgeon the board. and my friend was on the board at the time and he was on the board. one of the only two that fought the silliness that was being presented. so we ought to get these

results, and that will cause a little shakiness. the aaa ratings company, a growth pattern that was the envy of the whole industry. and it was clear that spitzer was in demand. and this change in corporate governance that was referred to really became a great example of what happened. and it would have led to was just unbelievable. you know, there was a meeting held. a good friend of spitzer's. and also the other lawyer which

was a corporate one for aig. he had been an associate. so it was very evenhanded, as you can tell. they had a meeting and decided that i should step down as the ceo. and so this is a march. and i was going to remain as the chair for a couple of years to see how the transition was going to work. which i thought was a reasonable thing to do. and i could remain as chair and i said no, i would not do that. when they came back and said, okay, you can stay at the chair. i decided i had to make a trip to malaysia and china. i decided on that trip that i

would ask a certain person to represent me. now, asking the auditors, for example, this transaction affects the shareholders equity's and earnings, but he said no. no, it was approved for five years in a row. and it was clear that they were getting pressure from the national office. well, it had no effect on earnings, so what is the difference. and he wouldn't do it. so it is clear that he had one aig over. they then paid him a billion

dollar fund. and that led to class action suits with several billion dollars more. when you think about what this man did, he went on national television. and he accused me of criminal fraud. without ever having contacted me or presenting any evidence that i did anything wrong. there was an op-ed written in "the wall street journal." about how could an attorney general be part of this is one of the leading ceos. he called me and threatened me. so clearly what happened in corporate america had to do with

enormous power. one more responsibility was taken over. now, is that good for american business or the economy? it is one of the reasons that i have written this book. because i do think that we are at a crossroads. i think it is disgraceful what they have done. they have tried to get me to settle a number of times and i will not do that. right now we are in the court of appeals. it is constitutionally proper. you have to prove. and i was so far away from it that the justices looked at me

for five years. and they said there is nothing we can do. but that led to the first part of aig's destruction. so now they are coasting on. but all of the rich controls that we had disassembled. ..

and so to claim gerstner's vacation is bad company should be a simple insurance covered me. look at their records. they are terrible. nothing wrong with this tragedy, singapore is a direct turns towing companies what kind of strategy they should have. is that what corporate america, is that we want an economy or is that just plain wrong. so that issue goes on. one of the company. the risk management structure breaks down. i cheered the new york fed for a number of years and one of their

top risk managers left aside, i hired him and he put together a great risk management structure for the second largest leasing company in the world. i see was just sold to china for a 20-yard alien dollars loss on their books. great step forward. we had a great risk management system. that that was to be admitted. we began taking on more and more risky credit default swaps covering the cd is packaged mortgages. the ceos are put together by investment banks and supposedly

had been rated by the rating agencies. he declared this is a aaa rated portfolio before you write a credit default swap, you want to know what you are ensuring essentially. most was declared to be aaa. they turned out to be triple garbage. and so, why would aig respond to collateral calls from those who would place those with aig? but they did. they kept on providing collateral. aig lost everything. they weren't required to put up collateral as if they had to aaa.

we've been aaa for as long as i could remember. the problem is there's no price discovery on this cd is. there's a market market you traded on like you would on a stock market. every broker dealer had a different price for the same cd. so why would you respond to collateral calls? you could get the same price, why would you respond to it? i wouldn't have responded at all. so when things got hot in the energy was running out of liquidity, they were insolvent. plenty of insolvency. the closer a trillion trillion dollars of assets. so i reached a point where aig aig -- it was froze.

you can borrow money anyplace. so by then, unmanned named williams sought came from citigroup and was running the company. i knew him quite well. i try to help in any way i could. so because the new york fed and says they need access to the side window. they refused. he kept on badgering. let me get a broker dealer license. they refused. goldman sachs cut a bank holding company license. they got media access to the fed window. there is an insurance company in hartford. he said by a small bank for 10 they have access to the fed window. aig was denied access to any government funds.

finally, paulson calls williams and sister are going to give you one plan. take it or leave it. i said if the secretary of the treasury calling. we'll give you $85 billion at 14.5% interest. everybody was spiraling at 1.5 to 2%. and we'll take 9.5% of the equity. incidentally, you're fired. and putting in somebody else. the somebody else happened to be at libby who is on the goldman board. so he asked to sign the agreement. he said i'm not going to santa. he just fired me.

so that he was on the goldman word, since the agreement, resigns richer actively three days later. i'm never at the secretary of the treasury of the united states calling a company ceo and firing him. it's the job of the curves. not the secretary of the treasury. because of the $85 billion, aig cut 60 billion, went out the back door quickly. dr. bill out what to goldman sachs and others. aig was required to sign an agreement that was a total release to the counterparties and they were saddled with takeout order.

now that's what the american system was like them when scarborough problems ahead of us. during my term at aig, we renationalize twice. once in iran and one in pakistan. we got compensated and went to the world court, got compensated in the iranian in pakistan met with retail. he compensated us for that. is this what i just described have been in the third world country, i'd be down in washington pounding the table about what they intend to the company. we are doing that by suing the u.s. government court of claims. because what happened should not have happened.

so that's what the environment is like today. the boards have taken over companies. ceos have lost a lot of power. i'm not saying they were all brought our 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 to let to changing the entire environment. we've got to find our way back to a reasonable regulatory environment that anchorages business, not discourages business. i'm going to stop here. >> quite a story and also one that's of great can you in terms of the point is made and what

impact these developments and circumstances will have and have had on the american economy. we are going to invite this distinguished audience to pose questions. before you do come either to pick up in a critical point you reference on corporate governance. you reference sarbanes-oxley, clearly dr. frank is out there. what specific advice or recommendations would you have the right balance on regulation this time? you have a dodd-frank document is several thousand pages and most of the people say they've never read it. what is the right balance? what is your advice? >> you have to decide what different degrees of corporate governance based upon size of the company in the business that it then.

if you have a global company as an example that's an different types businesses, you have to rely on management because i don't care how good your direct desire. unless they're full-time direct or is working most of their time at the company, what are they going to know? they know what you tell them. if you don't have confidence in the management, get a new ceo. yes you have to report to the board. not only purport to them. they have to have the information they want and need, but you can't have them trying to second-guess the management of the company. committed to management if you don't trust them. we never had that problem with aig.

if anything, we invited to write yours to come to the senior staff meetings. they could sit and hear first-hand what was happening on a day-to-day basis. there's got to be a confidence factor and you can't frighten the directors by having laws and regulations that make them how to do things they normally would not want to do. the pendulum has swung so far in one direction that the relationship between the board and ceo has become strained and that's not the way it should be. it's the wrong atmosphere. from the late 60s until 2005, it worked better than better.

it worked beautifully. clearly we were doing something right. look at the outside fact is that brought this on. in aig's casey was spitzer and the outside directors wanted their own lawyers. they were interested in their own cells can. that's when it became obvious that we better look at some of the attorney general's and our country to make sure they are doing what they're supposed to do and not what they want to do. the attorney general sues the office to promote themselves. spitzer's successor was attorney general. you got a guy who has ambitions as well. is that the right kind of structure you want? so corporate governance has

changed. the pendulum has swung too far in one direction and we have to get back and have a hard look at what we want. look, the government -- go back to how all this started on the real estate issues. fannie mae and freddie mac were urged to issue them by more and more mortgages of quality with secondary. geithner was the head of the new york fed. citigroup is right in new york, right in his backyard. did he know what was going on in citigroup? to teach us find that out later? how to define that out? are supposed to have examiners all the time. where were they? a lot of people take the sec. the investment banks, goldman

sachs and morgan stanley and others in lehman would have had 40 to one leverage of capital. why would you let that happen? they had six months between bear stearns and what happened afterwards. every six months. what did the government do during that six months? and so to blame industry and look at the others on the other side you had responsibility. >> let's go -- [inaudible] [inaudible] every board relies on the auditors help.

what do we do about that? [inaudible] >> of course they are. look what happened at enron. the auditing firm went out of business. one of the biggest and best in the country. so they were frightened to death. they are out of there. >> what do we do about it? >> we've got to bring the pendulum back to the center and not go wild and think every company is somehow crooked. that's not the case. >> let me pick up on that point we made in the first question. you are also focused and obviously you have the largest insurance company in history. what advice would you give to

smaller companies? are you concerned about developments in what it means for the american economy? >> running a company now that's private and not going to go public. [laughter] we are growing nicely and we are expanding nationally rapidly. it's a great company and its going to be a greater company. we have great people. everything we did and running aig. yes i am can learn, paula, as to what can be done. we need someone as at the governmental level not to overkill the golden goose that is corporate america's favorite chelating that. we're going to have such regulation that she threw your

hands up and say should i be incorporated in the united states? there's a lot of states you don't want to be incorporated in. i would recommend to any company having your headquarters in new york. you'd be crazy to do that. [inaudible] [inaudible]

[inaudible] [inaudible] >> what happened is very simple. they disbanded the risk management system. the guy running aig financial products told sullivan, we don't

need him. the risk management people, we have our own and solos and took down the risk management they were supposed to be looking after aig. in fact they would tell you it's in the book. the auditors went to the then ceo and said, sullivan and his number two are incapable of running the company. they did nothing about it. >> we have three questions were going to take. monday begin with dmitry science . [inaudible]

[inaudible] eliot spitzer for many years was in the building itself. and then mr. spitzer's company very soon begin to break down. cleaning became profoundly inadequate and people began -- [inaudible] on a regular basis. [inaudible]

it's been that incorporated and mr. spitzer began charging and was also charging us. they said to ask coming you know, there is no way. and when i asked, was mr. they're aware -- he was well aware of our contract. mr. spitzer was indeed aware of the concern. and another point i want to make. when i look at aig and thousands

of people -- [inaudible] what we need is to allow american companies in the american people do what they do best and what made this country great. [inaudible]

>> all right, thank you. any comment on that? >> i agree with dmitry on that. we have to get our house in order and have a better balance between the regulation in the freedom of a ceo to run his company or her company and a board of directors that is supportive and not antagonistic to the management of the company. you can't have that. it won't work. >> we have your question asked and then we'll come right to you. >> 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. has it always been that way there is the reporting getting better? >> i think it may be a little

bit of pose. i am not sure the so-called hanky-panky if you talk about it turns out to be as bad as it has sometimes been reported. he's got to be specific in each of these things as you read. 3any of them turn out to be not many of them turn out to be not improper at all when you get done with it. what happens when you have an aggressive regulator, he will bring an action. he may lose it or you're for years later. in the meantime ewa sonnet has bigger job. we have a more complex world. and so, 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 would come to that conclusion as you have. >> our final question before we close. [inaudible] -- trying to get this pendulum to swing back. after your story, that would generate a lot of sympathy. i have to pose the question, what if we talk about here is the governmental power coming further and further embedded in our system and will be difficult -- it's not a pendulum. on page 232 you talk about the causes of the financial crisis in the governmental policies encouraging homeownership. and then you talk about interest rates held 20 for too long.

here we are not too many years later as interest rates being hauled very low for a very long time. are we in danger and the fact of attacking the american dream and economic system that makes it possible? >> were printing money every month. we're going to pay a price at some point as an inflationary boom to scare everybody around. we need a leader in people recognize that individual as a leader who can bring about change. it won't be easy. we have to change the attitude of congress. there is no free lunch. who are ultimately going to pay the price for everything we're doing. when companies can't manage their business with being held

to standards that nobody could live under, it is impossible. running a company that does business in 130 countries, limits how you it's a full-time job. he needs somebody with lots of energy, knows the business and is willing to do whatever it takes to make a company better and better. that's what a good ceo does. that's the definition. how are you going to attract people like that and hold them accountable for things they have no control over? he used to be that you have a board of directors is maybe half-and-half, half inside and half outside. then the pastor with the new york stock exchange after being pressured by government agencies but that wasn't going to work. you have to have more outsiders

and insiders. and they took the next step and said the only one who should be on the board is the ceo and incidentally we want a meeting of the board without the ceo. what are they going to talk about? the right kind of tired of what? so that's got to change. you've got to have confidence between the board in the ceo. once you've lost that, that's gone. he might still get rid of the ceo or change the board, one or the other or both. how are we going to change it? is going to take a leader in the white house and congressional leadership to bring about a change. it was ambien overregulated. that's not what i said.

you want regulation, but proper regulation. not just determined to find fault. take a look at the regulation in a small country as the city state in singapore. the regulators are very brave people. how did they get buried people? they pay them enough. we've got to change the structure. we are killing the very things that made us great. i wrote this book not with anything i hope to get out of it. i hope to awaken people to what happened. we can have that going on. what do we look like?

>> hank greenberg, truly an icon of american business. "the aig story" is a must read for those who are concerned about the unintended consequences of governmental regulation nonindustry, particularly financial institutions in the future of the american economy. thank you for