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Commentaries - Time To Junk AIG

by: Matthew Goldstein

15:27 September 22nd, 2009

The federal government’s $180 billion effort to prop up American
International Group has worked, averting an even bigger financial
catastrophe. Now it’s time for the Obama administration to oversee the
dismantling of the failed insurance giant with all due speed.

A report this week from the Government Accountability Office makes
clear that AIG would crumble and likely reignite financial fears
around the world without the government’s massive support.

And the report says it’s “unclear” whether AIG will ever pay back the
$121 billion in government assistance that’s still coursing through
its balance sheet.

The GAO report should provide the administration will all the
ammunition it needs to get tough with AIG. The report’s conclusions
should stiffen the spine of regulators in their dealings with Robert
Benmosche, AIG’s new $9 million chief executive.

The former MetLife chief executive seems to act as if he has taken
over a financial company that’s simply made one or two bad decisions —
not one that nearly brought the global economy to its knees.

Benmosche’s plan to take his sweet time in selling off AIG’s assets
might make sense if the insurer could someday stand on its own without
the government’s help.

But the GAO report raises serious doubt about whether AIG will ever be
self-sufficient again, noting that “the company continues to rely
heavily on the federal government as its source of liquidity and

Worse, Benmosche is taking counsel from Hank Greenberg, AIG’s former
longtime CEO, whose only concern is protecting his still significant
equity stake in the de facto taxpayer-owned insurer.

Now Greenberg is trying to get Representative Edolphus Towns to take
up his cause of restructuring AIG’s bailout package to make it easier
for the insurer to live on.

But Towns, the chairman of the House Committee on Oversight and
Government Reform, who once sat on the board of subprime mortgage
lender MortgageIT, should not be taking Greenberg’s calls either.

It’s odd that the Brooklyn Democrat is taking a tough stance with Bank
of America over its questionable acquisition of Merrill Lynch, but is
fielding ideas from the man who oversaw AIG’s transformation into a
financial behemoth.

The time for kowtowing to Greenberg must end. All this is doing is
giving false hope to those investors who’ve been snapping up AIG’s
shares on the belief the insurer can turn itself around. AIG can’t and
it won’t.

With the worst of the financial crisis now past, it’s time to break up
AIG and move on. AIG rightfully deserves to join Bear Stearns and
Lehman Brothers on the ash heap of history.

A dissolution of AIG would serve as an important reminder to Wall
Street and giant banks around the world, that there’s a price to be
paid for becoming too big to fail — and then failing.

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