“AIG has been what we call in the business an up stock, meaning it has been one way up since they did the split, the 20 for 1 reverse and that’s because of endless unconfirmed rumors and just gossip, gossip that something good is about to happen. Emanating, frankly, from someone who should be made to, let’s say, be quiet immediately.
He’s the man who sewed the seed for its destruction. Even though he created the company, he’s the one who set up the rogue London office. He’s the one who commanded the company to insure financials. I urge you to go back to the 2007 analyst meeting to see how long this company was doing stupid, stupid things like ensuring banks to allow them to get around European capital requirements. Greenberg somehow takes no responsibility whatsoever, is never called out on this, and shamelessly hypes the company as undervalued to every media outlet imaginable. This man is really off the reservation.” — CNBC’s Mad Money 9/23/2009
Without naming names, the often fiery and always controversial Jim Cramer turned his outrage on another controversial titan, AIG’s founder Hank Greenberg. The problem as Cramer views it, is that Greenberg was the one that lead the company into its risky derivatives business, but he rarely takes any heat for these decisions. Furthermore, Greenberg has proposed a plan to reduce AIG’s debt to the government, and with the stock surging more than 20% on Monday he is being hailed in some circles as a potential savior to the company.
As everyone is well aware, AIG (NYSE:AIG) was bailed out to the tune of $85 billion the day after Lehman Brothers fell, and they have since been bailed out three more times. To date taxpayers have lent AIG $182.3 billion, and after asset liquidations AIG still owes the government about $120.7 billion. Of course, there are doubts about whether AIG will be able to pay back the taxpayers anytime soon as they have sold off many valuable assets at fire sale prices. As Greenberg said in his statement back in April,
“Since the day the treasury announced its plan to liquidate AIG, value has been destroyed because AIG’s people and their relationships — AIG’s business — are leaving. The evidence is overwhelming and indisputable that the American taxpayer is an investor in a steadily diminishing asset.”
Greenberg’s plan is to ask for mercy from the government in the form of lower interest rates and a longer time-table for repayment. Rep. Edolphus Towns’ House Oversight Panel is reportedly going to push for up to 20 years to repay the restructured debt, instead of the original 5-year term. In so doing, there is a better chance that taxpayers get paid back, and AIG would have a much better opportunity to survive as a healthy business. Cramer’s outrage stems from the fact that you are rewarding the shareholders of this corporation that took far too many dangerous risks. Primary among the shareholder beneficiary is none other than Maurice “Hank” Greenberg, who is estimated to have made $588 million on the stock’s 21% rise on Monday.
While we understand Cramer’s concerns that a bad actors get rewarded, this is what happens in the aftermath of the “too-big-to-fail” moral hazard. Greenberg should take much of the blame for his leadership of AIG that led them to need for unprecedented government bailouts. However, as taxpayers, we should all demand repayment, especially those of us who disagree with how the situation was handled in the first place. We doubt that the original plan to sell off AIG in bits is going to be able to get that money back (as the GAO stated in its latest report), so perhaps Greenberg’s approach would make the best of a terrible situation. Whether the government will bite on this deal is an different matter, considering Credit Suisse (NYSE:CS) analyst Thomas Gallagher calls the Greenberg plan “farfetched” saying the terms of the loans are already favorable for AIG.