American International Group's restructured loan frees the firm from terms in its original bailout that were “strangling the company,” while the new deal “should buy AIG some time” to sell off assets without having to accept “garage sale prices,” Maurice “Hank” Greenberg, the organization's former chief executive, said last week.

Mr. Greenberg–now chairman and CEO of C.V. Starr, once closely affiliated with AIG–had been lobbying AIG's senior management for weeks to renegotiate the terms of the government's original $85 billion bailout loan to charge lower interest rates and extend the term to allow for a more orderly sale of assets.

Hours after AIG and the government announced a restructured deal incorporating many of his suggested changes, Mr. Greenberg delivered his assessment during a video appearance here before the annual conference of the Captive Insurance Council of the District of Columbia.

He spoke from his home in New York via videoconference because, he explained, “I wanted to be sure I was around today,” as AIG reported more than $24 billion in losses for the third quarter, and just hours after AIG, the Federal Reserve Board and the Treasury Department agreed to material changes in the bailout agreement.

“Things are changing very rapidly,” he said. “I thought I'd better stay.”

He said it was “very clear” to him that AIG's initial bailout program was “going to fail” because the interest rate was way too high, totaling about $27 billion for the two-year life of the loan–a level that he said “no firm was going to be able to withstand.”

He said the short two-year length of the original loan put AIG “in a position where they're expected to sell assets to repay the taxpayers, but they can't sell anything in this market.” He explained that “you can't sell subsidiaries in this market because cash is very scarce,” and since “anything you could sell would go at 'garage sale' prices.”

Extending the loan to five years, he said, “should buy AIG some time,” adding that “some time after about three years,” AIG should be able to get a fair value for subsidiaries.

However, he noted, as majority owner, the Fed ultimately controls AIG, and “the Federal Reserve will decide what to sell.”

Mr. Greenberg–who saw the value of his holdings in AIG stock plummet by billions in the past two months–said his concerns about AIG were not about him.

“My concern is and always has been about the thousands of employees who've lost their life savings,” he said. “When I left the company, they had a market value of $170 billion, and now it's down to about $5 billion.”

He said the New York State employee pension system alone had lost about $1.2 billion due to the drop in AIG's share price.

Mr. Greenberg–who left AIG under pressure in 2005, after an accounting scandal involving the misuse of finite reinsurance deals to artificially boost the company's balance sheet–said he would “try to do anything I can to help in any way I can, but there's a limit to what I can do here.”

He put a lot of blame for the company's problems on the various boards at AIG, whose members, he said, “were not minding the store. What were they doing all this time?”

He said the company acted “greedy and foolish and in an unnecessary fashion, and whatever else you want to call it.” He added that AIG, because of its trading of credit default swaps based on subprime-mortgage securities, “kept running out of cash,” resulting in the company seeking out it government line of credit.

How this happened, he said, he was at a loss to explain, noting that while he was heading up AIG, he had formed an audit committee and other oversight as well–”more committees than I can count.”

“What was management doing?” he said. “I'm angry. Obviously, I'm angry.”

Complicating matters for AIG's recovery is the persistently soft property-casualty market, where “pricing has not stiffened,” he noted. Responding to rumors that AIG is cutting rates to maintain market share, he said, “That's the wrong thing to do, but sometimes desperate people do desperate things.”

Special Reports /

Greenberg Says New Loan Deal Keeps Feds From 'Strangling' AIG

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