But what about this issue?

maurice_greenberg.jpgThe NY Times Gretchen Morgenson provides this lucid analysis of the deal that prompted American International Group’s board to call upon Maurice “Hank” Greenberg to step down as AIG’s CEO after a generation of phenomenal wealth building for AIG shareholders. Here are the prior posts on AIG and Mr. Greenberg’s mounting troubles.
Ms. Morgenson asserts that the purpose of the questionable transaction that led to Mr. Greenberg’s ouster was to mask AIG’s declining financial performance from the market. Unless AIG’s stock price was maintained, AIG risked overpaying for American General Insurance Co. in 2001, which was a key acquisition in Mr. Greenspan’s strategy of diversifying AIG’s insurance business.
Nevertheless, Ms. Morgenson’s analysis fails to address the nuance that the transaction in question was not performed in Mr. Greenberg’s basement where no one could see it. Rather, it was a material transaction that was fully disclosed after careful review and approval by AIG and General Re’s executives, auditors and attorneys. Presumably, Mr. Greenberg would not have approved the transaction without such disclosure and approvals. In fact, Ms. Morgenson’s article simply assumes that the transaction was at least wrong without even entertaining the notion that numerous experts in such transactions had approved the transaction and are prepared to defend AIG’s booking of it.
Despite all this, Mr. Greenberg faces a possible indictment on criminal charges that could result in a substantial prison sentence in the autumn of his long and successful business career. In a couple of weeks, Mr. Greenberg will be removed from the the board of directors of the company he built into a financial powerhouse unless he waives his privilege against self-incrimination in connection with the regulatory investigation into the transaction.
Maybe AIG took risks with certain transactions that should result in restatement of its earnings and reserves. Although the value of AIG’s shares are fallen 24% for over $46 billion in market value since the beginning of the above-described probe, perhaps the value of such shares should be hammered in the market as a result of such a restatement. But do we really want the government criminalizing talented people such as Mr. Greenberg simply because he approved a questionable transaction that multiple experts in such deals had previously blessed?
That a reporter of Ms. Morgenson’s stature does not even mention that troubling issue reflects just how socially acceptable it has become for the government to abuse its awesome police power to criminalize merely questionable business transactions.

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