One of the more improbable resurrections to emerge from the financial crisis is the sublime bit of Kabuki theater whereby Maurice (Hank) Greenberg, the 84-year-old Yoda who built and led the insurance behemoth American International Group for 40 years before being deposed in March 2005 by his own handpicked board of directors, recasts himself as both a victim of a ruthless witch hunt by then–New York State attorney general Eliot Spitzer and as the only man who could have prevented AIG’s collapse and saved American taxpayers the tens of billions funneled into the company since September 2008.
AIG turned out to be ground zero of the crisis, the most interconnected of all the financial services companies, in large part because it had foolishly decided to insure many of the risks in the system. Its collapse on September 16, 2008, caught nearly everyone by surprise. Indeed, the unraveling of the House of Hank was a quake of such magnitude that the Federal Reserve Board decided to bail out many of AIG’s trading counterparties at 100 cents on the dollar. Who they were and how much they received was kept a state secret for months. (Why that happened has been the subject of an ongoing congressional investigation.)
There is little question that the combination of the bankruptcy of Lehman Brothers Holdings and the near-death experiences of both AIG and Merrill Lynch & Co. that same September 2008 weekend led directly to the decision by Ben Bernanke, the Federal Reserve chairman, and Henry Paulson Jr., then the secretary of the Treasury, to demand that the U.S. Congress pass into law what became known as the $700 billion Troubled Assets Relief Program. “Of all the events and all of the things we’ve done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with AIG,” Bernanke said on the television program 60 Minutes. “Here was a company that made all kinds of unconscionable bets. Then when those bets went wrong . . . we had a situation where the failure of that company would have brought down the financial system.” ....