Greenberg's Chutzpah

Hank Greenberg didn't like AIG Bailout I, nor AIG Bailout II. So he's pushing for AIG Bailout III, which will be even nicer to AIG's shareholders, such as Hank Greenberg.

More needs to be done to save AIG. A new plan needs to be drawn up to allow private capital to replace the government's capital. And the company itself cannot be so burdened with interest payments that it is forced into effective liquidation, making jobs impossible to keep and decreasing the likelihood taxpayers will be repaid.

There is a plan to allow private capital to replace the government's capital. It's called selling off assets, and it's going to take a while. As for "effective liquidation", I don't think that Greenberg or anybody else needs to worry about that, so long as the government owns 80% of the company. Hank should ask one of his German friends what Anstaltslast means.

Greenberg says that he wants the government to "apply the same principles it is applying to Citigroup to create a win-win situation for AIG and its stakeholders" -- but on closer examination, he really doesn't. He writes:

First and foremost, the government should provide a federal guaranty to meet AIG's counterparty collateral requirements, which have consumed the vast majority of the government-provided funding to date.
A federal guaranty would allow a large portion of the previously drawn capital from the federal credit facility to be repaid and redeployed elsewhere in the financial system with no loss to the American taxpayer. This is exactly the type of guaranty that the federal government is providing to Citigroup.

No, it isn't. AIG is being forced to put up collateral; Citigroup isn't. Greenberg seems to think that a federal guaranty will somehow take the place of that collateral. I have no idea whether that's possible, but at the bare minimum it would surely involve AIG regaining its triple-A credit rating -- which in turn would mean the government guaranteeing AIG's debts more generally. Citigroup's guaranty hasn't garnered it a triple-A rating; what makes Greenberg think that the same thing would get such a rating for AIG?

What's more, the guaranty at Citigroup is against further losses, over and above the mark-to-market losses already taken. At AIG, the existing collateral requirements are the equivalent of those mark-to-market losses: they're a function of where the CDS market is trading. Greenberg is asking the government to guarantee not AIG's future losses, but its existing losses -- leaving lots of upside for private shareholders.

I'm not sure why the WSJ decided to print this craven plea, but no one in government should pay any attention -- not that they're likely to. Greenberg was instrumental in setting up AIG Financial Products; he, as much as anybody, is to blame for AIG's enormous losses. And he certainly doesn't deserve a personal bailout, which seems to be what he's asking for here.