What I am about to say is not very original. But I have not seen it said anywhere else. Eliot Spitzer singlehandedly is responsible for the upheaval on Wall Street in recent years. Without Spitzer, Hank Greenberg's "foot faults" as he, a tennis player, calls them, would have never come to the fore. This includes the allegation that he was involved in the finite insurance deal with General Reinsurance. Or that he and other CV Starr directors shortchanged the Starr Foundation. Or, more comprehensively, that Greenberg and other top management engaged in many fraudulent business transactions just to prop up AIG's stock price.
Spitzer and Spitzer alone was the only Attorney General, indeed the only public official in the United States with the drive, determination and relentless ruthlessness to unearth these charges and those against many other Wall street players be they Grasso's compensation at the New York Stock Exchange, the charges against CitiGroup of allocating IPOs to favored clients or the conflict of interest between investment banking and research at Merrill Lynch.
That is not to say that all those charged were innocent. That no wrongs were committed on Wall Street. Some undoubtedly were although they might not have been uncovered in the absense of Eliot Spitzer's high-profile accusations. But heads rolled nevertheless, and within a very condensed timeframe the leaders of some of America's most prominent financial service institutions were replaced for fear of what he might do next.
Let's take one company and suggest where it would be today if Spitzer had not been on the scene. Hank Greenberg would no longer be CEO of AIG but he would be a very involved Chairman. Martin Sullivan would probably have been chosen as CEO and would have given his attention to insurance. Greenberg would have worried about everything, as he always has, but would give special attention to finance, derivatives, sub prime mortgages.
And based on my experience working with him, he would have foreseen problems with the subprime mortgage market. He would have taken whatever steps necessary to address this problem. And while he couldn't solve it outright, the losses would have been minimized.
The resulting profile of AIG today would be very different. Far fewer write offs. Smarter business decisions. The stock would be up at least 25 to 30 points. His warnings could have led to similar scenes in other companies. And though the credit crisis would not have been averted altogether – at least it could have been minimized.
But, alas, Attorney General Spitzer very much was on the scene. And we see the results.
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2 comments:
Mr. Shelp,
while Googling AIG, I came across the references to your book, Fallen Giant, and then to your blog.
I also have mixed feelings about Mr. Greenberg's departure from AIG and Spitzer's role in it. I wish Greenberg hadn’t bent the rules to the point of breaking. The man is a brilliant business strategist. You are exactly right that AIG would have been much better positioned instead of on the brink of disaster – not only for the company, and its shareholders, but the world financial system.
I once worked for AIG's mortgage insurance subsidiary. During the 1990s when United Guaranty struggled with huge claim losses related to oil/real estate bust, we often talked about the disaster it would be for us if it ever happened to the California real estate market. Now it has and what we suspected is coming true. As a side note, Mr. Greenberg came to our NC offices during this time. Needless to say it wasn't to say hello. I didn't see him but everyone knew before he left the building that the president of the residential insurance (first mortgage) company got the axe.
Could you answer one question for me: Do you know the exact date that Cornelius Starr founded American Asiatic Underwriters? I have seen November 1919 but was looking for the specific date.
Thank you.
Sorry to be so late in responding to your question. Starr arrived in Shanghai in November 1919 and started his company on Dec 19. That is recounted on the first page of Chapter II - Shanghai Starr -- in Fallen Giant.
Best Regards.
Ron
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