“All of this could have been avoided if the Federal Government had merely issued a single “Letter of Credit” to the counter parties on the derivatives, protecting them from losses. AIG shareholders would have remained almost unscathed, the collateral damage to the economy wouldn’t have happened, and tax payers wouldn’t have actually had to come up with any cash.”
So what would have happened to that office in London? Would they simply have continued, or are they still in business today?
I imagine the executives at headquarters would have shut them down and kicked them out on the street for one, simple reason: a CEO never likes to be embarrassed.
The CEO really has only four jobs: 1.) Choosing the right people to run each division or business, 2.) Managing risk, 3.) Allocating capital, and 4.) Acting as the public face of a firm.
When Hank G. was in charge, AIG wrote some derivatives, but none of them had the provisions that took the company down because he was, like Buffett, much older and had lived through bad economic times. He also knew risk management (he was forced out of office by Elliott Spitzer for “fraud” that amounted to less than 1.5% of the company’s book value using an accounting method that was not illegal, had no rules against it, and had been used in the past by other companies - it just happened to be in the aftermath of Worldcom and when Spitzer was trying to get a name for himself to run for governor). The folks that came in after Hank didn’t have the same risk management philosophy and they ruined the company that he built over 60 years from a tiny insurance company into a global giant. It was tragic that this man’s life work was taken down by a small group of men and women in London.