Greenberg-SJohns They say that those who live in glass houses should not throw stones–a time-honored piece of advice ignored earlier this week by Maurice Greenberg, AIG's former head honcho, when he tossed regulators under the bus, blaming them for our current economic mess without taking much responsibility for the failings of his own kind.

Mr. Greenberg sent mixed messages during his late afternoon talk on “Risk Management in the 21st Century,” part of the William J. Parkinson Distinguished Lecture Series at the St. John's University School of Risk Management. (For the complete news story on the speech, go to http://bit.ly/e6bIs.)

On the one hand, he said we don't necessarily need anymore regulations or regulatory bodies for insurance companies–just better regulators to enforce the rules already on the books.

He went so far as to contend that regulators already had the authority to examine insurer holding companies that traded in the toxic securities that nearly did in firms such as his own AIG.

“I don't recall any regulator coming to look at the [insurance] holding companies, and if they did, it was a very superficial job,” he said, after noting that “if they had done their jobs,” the economic meltdown might have been avoided, or at least been less severe.

While he did not mention AIG by name at any point, since it was credit default swaps on collateralized debt obligations packaging subprime mortgages that nearly drove his old firm off the cliff–taking the entire economy along with it–the implication was clear. What other company could he be talking about?

For this reason, his assertions, based on 20-20 hindsight, have to be taken with a grain of salt.

Even if he still been in charge at the time, I cannot imagine Mr. Greenberg allowing regulators to just waltz into his holding company offices and delve into his unregulated (and extremely lucrative) credit default swaps. More likely, he would have challenged their authority, derided their concern and given them the bum's rush out the door.

Meanwhile, while he rightfully blasted the Clinton administration for encouraging reckless lending to unqualified home buyers, and later lamented the government's failure to regulate the securitization of subprime loans, I cannot recall his running to Capitol Hill at any point to demand more oversight, especially once the free-market crowd took over in the Bush White House.

On the other hand, Mr. Greenberg–currently chair and CEO of C.V. Starr and Company–insists he now backs more regulation and transparency for credit default swaps (which AIG traded in virtual secrecy for a decade), as well as for the rating agencies that gave their blessing to the toxic securities AIG foolishly guaranteed.

Too bad he didn't use his considerable political influence to lobby for such rules before CDS and CDO products ate away at the foundations of our economy like killer termites!

Frankly, I just wish he'd explained during his speech how the enterprise risk management system he boasted of forming failed so miserably to prevent the out-of-control investments made by AIG's infamous Financial Products unit.

I am also waiting to hear why ERM did not reject the bogus finite reinsurance transactions conducted with General Reinsurance that artificially bolstered AIG's balance sheet and thereby misled investors, policyholders and regulators when he was still at the helm.

You might recall that Mr. Greenberg “retired” from AIG during the fallout from that accounting scandal, which resulted in criminal convictions of five people—one from AIG and four from General Reinsurance, including former CEO Ron Ferguson.

Mr. Greenberg was cited as an un-indicted co-conspirator in that case. In August, he paid $15 million to the Securities and Exchange Commission to settle a securities violation allegation pertaining to the same situation, and a New York State civil fraud investigation is ongoing.

He admits no wrongdoing, and in fact got into a public war of words with the SEC over how to characterize the implications of his settlement.

Yet Mr. Greenberg's words of wisdom are still being avidly sought by industry leaders at events like the lecture at St. John's.

By any measure, it was quite a dramatic scene. Mr. Greenberg, despite lugging so much baggage, is still treated with respect bordering on awe at the industry's public gatherings.

It almost felt like being in a house of worship on Monday, as the audience of industry officials at St. John's sat absolutely still and strained to hear every word from Mr. Greenberg, who struggled to speak over a horrific cold.

He pretty much faulted everyone but himself and his CEO colleagues during his speech, mentioning corporate greed and management incompetence only once and barely in passing right at the beginning when he said: “We blame management, of course, for the excesses that led to our financial crisis”–then moving quickly on to the scapegoat at hand when he added, “but where were the regulators?”

Hold on a minute! Where were the CEOs? Where were the boards of directors? Where were the enterprise risk management fail-safe systems?

Mr. Greenberg rightfully blasted the “inherent conflicts of interest” undermining the credibility of rating agencies, but what about the inherent conflicts of being in charge of both the board of directors (as chair) and day-to-day operations (as CEO), as Mr. Greenberg was for so many years at AIG–an example followed by far too many top dogs in this business.

The man who had once stormed the beaches of Normandy now must satisfy himself with a mission of restoring his reputation and writing a better ending to his incredible career story.

E.F. Hutton is long gone, but the famous slogan of that once proud stock brokerage firm lives on, at least in spirit, embodied in the certainty that “when Hank Greenberg talks, people still listen.”

The big question now is why.

Special Reports /

Mr. Greenberg Should Look In The Mirror

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