Another Book To Read

Just when Noman's stack gets down to 100 books remaining in order to satisfy his curiosity about something--the financial crisis, for instance--somebody goes and writes another one.   "Fatal Risk" on AIG's crackup is a case in point.

Crisis Mismanagement

Even before the Paul, Weiss accusation, Mr. Spitzer was putting intense pressure on AIG's board, so it is possible that he would have engineered Mr. Greenberg's exile even without the claim of evidence destruction. What is certain is that the world's largest insurer was abruptly separated from the world's most experienced risk manager at the worst possible moment...

Of course it was AIG where Mr. Greenberg earned a world-wide reputation, serving as chief executive for almost four decades. Mr. Boyd says that there was one appointment he never missed—a regular Tuesday meeting that included AIG's chief financial officer, its general counsel and the leadership of its now infamous financial-products subsidiary. The subject was risk. Once Mr. Greenberg left AIG, the meetings stopped—and so, apparently, did the habit of making risk a matter of abiding concern. Mr. Boyd says that federal investigators, looking into the post-Greenberg AIG, could not find a senior New York-based manager "sending so much as an inquisitive email" to the financial-products group in Connecticut about the risk-filled portfolio that would plunge AIG into crisis...

In the months after Mr. Greenberg departed, the financial-products division went on a subprime-mortgage binge. It had largely avoided writing swaps on bonds backed by mortgages during the Greenberg era but quickly entered into tens of billions of dollars of contracts that would require AIG to pay the full value of such securities in the event of default. What almost no one at AIG realized was that, even without a default, the company would have to post billions of dollars of collateral if the market price of the bonds declined or if AIG's own credit rating slipped...

By the way, Hank Greenberg--who was taken down by New York State's Democratic Attorney General Eliot Spitzer (later, the Governor of NY who, I don't have to tell you...)--was a big Republican donor and campaigner.