In 2005, Fortune Magazine ran this piece by Devin Leonard. I just came across it in my mail, where it was lying forgotten at the bottom of the inbox.
So. There was at least one mainstream journalist hip to the revered boss of AIG. I take back my general denunciation of the media on this point. Apparently, what was missing was the larger picture…
Well, that’s what bloggers are for. We supply the big picture. We connect the dots…
Here’s a part of the piece:
“Not long after starting a prestigious new job as general counsel at American International Group, 48-year-old E. Michael Joye received an alarming piece of news. AIG, an employee confided, had for years been improperly booking premiums it received for workers’ compensation insurance. If true, it meant that the insurance company was cheating state governments out of tens of millions of dollars used to pay benefits to injured workers.
Joye, a former Navy lieutenant who had left a blue-chip law-firm partnership to join AIG, investigated the matter personally. He soon heard even more shocking news: that AIG chief Maurice R. “Hank” Greenberg knew about the practice–and had done nothing to stop it. Greenberg was one of the all-time great American CEOs. Could it really be true?…..
…According to Joye’s notes, one employee even described a meeting about the matter at which Greenberg had asked, “Are we legal?” When an employee responded, “If we were legal, we wouldn’t be in business,” Greenberg “began laughing, and that was the end of it.”
Nonetheless, Joye reported what he had learned in meetings with Greenberg and Thomas Tizzio, then AIG’s president. Then he wrote them a memo that couldn’t have been blunter. AIG’s behavior was “permeated with illegality,” he wrote; these “intentional violations” could produce criminal fraud and racketeering charges and “expose AIG to fines and penalties in the hundreds of millions of dollars,” as well as civil suits producing “astronomical damages awards.” AIG, Joye wrote, needed to end the illegal practices immediately, fire all those involved, report the violations, and make restitution.
After finishing the memo, Joye met with Tizzio. What was Greenberg going to do? Nothing, Tizzio told him, according to Joye’s later account. Greenberg had decided that correcting the problem would be too expensive. (Tizzio declined to comment.) Appalled at the news, Joye tendered his letter of resignation on the spot, packed up his office, and left the building. He had been at AIG for eight months……..
Hank Greenberg, however, did move quickly to deal with the thorny problem of a former general counsel who might publicly accuse him of condoning fraud. Two weeks after Joye quit, Greenberg sent a short note to Jules Kroll, founder of the well-known corporate-intelligence firm, forwarding background material about Joye. ……
Joye’s abrupt parting with AIG was not a case of skittishness brought about by the current spate of investigations into insurance industry accounting. No, Joye left AIG in January 1992, and for 13 years he remained silent about what he had discovered there. …….
But Joye never forgot his glimpse of the way AIG’s CEO did business. Even after retiring to his home near Princeton, N.J., he kept his AIG files. And so, this past spring, after New York attorney general Eliot Spitzer began an investigation into Greenberg’s long-buried secrets, Joye came forward to offer one of them up.”
Notice how the universal (and well-merited) emphasis on the wrong-doing of Goldman Sachs, the company, or on AIG, the company, takes the focus off Greenberg. See, for example, this piece by Matt Taibbi, which does just that.
But worrying about AIG, or GS, as companies, at this point – while useful and necessary – is in some ways beside the point. The problem is not any company or organization itself but a network made up of people who use companies like GS or AIG or Citi. They’re the culprits of the financial crisis.
This network communicates outside the formal communication channels usual to business and government. You’re going to get relatively little looking for an email record or phone record — as a smoking gun. Or rather, even if you did find it, it would be secondary.
Take Blankfein’s presence (Lloyd Blankfein, CEO of Goldman Sachs) at the bail-out pow-wow hosted by Tim Geithner. Outing this gives you a tea-pot dome type scandal, but then what? The scandal can quickly be resolved by disposing of the offender. But that does next to nothing to disrupt the network. The rest of the insiders can always get another member to pick up the slack.
That means that in this game there are bag-holders... and there are players.
Vikram Pandit is, from that perspective, a bag-holder. Franklin Raines is a bag-holder. Bernie Madoff may have been turned into a bag-holder, but he was also a player.
And Hank Greenberg is a player, for sure.
Just my speculation, this Friday afternoon, as winter starts closing up shop in the Southern Cone. It was warm enough today to walk around without a coat. A couple of weeks more and spring will be here…