David Brooks doesn't refer to directly to his paper's report on Maurice Greenberg but his column might be read as a commentary on it. He argues that the over-confidence which led to the crash is in danger of simply being transferred to Washington:
Every great action can be done in a spirit of humility or in a spirit of overconfidence. Regulating pay in a spirit of humility would mean rebalancing the power between shareholders and executives, without getting government involved in micromanaging individual pay decisions.
But this is not a moment of humility. Treasury officials are now making individual pay-package decisions across an array of different companies — and they must have really big brains to understand the motivational psychology of all those different people. The Federal Reserve, meanwhile, has decided to police banks and veto pay deals that lead to excessive risk. Those experts must have absolutely gigantic brains if they can define excessive risk years before investments pay off.
This and the previous post bother me. Hank Greenberg paid $15 million to settle a claim brought by the Securities & Exchange Commission that he participated in covering up AIG's losses. For example, he was involved in using an offshore shell corporation to make it appear that operating losses in AIG's auto warranty insurance business were capital losses, which the stock market minds less, since they are seen as a one-time affair. David Brooks can talk about "rebalancing" relations between management and shareholders, but Greenberg was lying to those shareholders and keeping AIG's stock price higher than the truth warranted. In the stock market, economic risk and enterprise risk are all to the good, but the risk that you are being lied to is unacceptable and rightly against the law.
What has Greenberg built in his career that compares with a great railroad, a drug company that develops useful medicines, Google? Under his reign, AIG went heavily into writing credit default swaps, which ended by bankrupting the company and costing the taxpayers a great deal of money.
While one can admire his energy at 84, I wonder if Greenberg has any idea how to use it for productive ends.
Posted by: Hal | October 29, 2009 at 02:05 AM