AIG: Elizabeth Warren Doesn’t Let The Facts Get In The Way Of A Good Rant

AIG: Elizabeth Warren Doesn’t Let The Facts Get In The Way Of A Good Rant

AIG: Elizabeth Warren Doesn’t Let The Facts Get In The Way Of A Good Rant by Todd Sullivan, ValuePlays

For my money Warren is demonstrates everything that is wrong with Congress and is as dishonest, probably more than anyone there.  She typically relies solely on populist rhetoric that is well, factually false….

I don’t care what a person’s views are, just try a little bit to be remotely truthful?

Before anyone starts chiming in on political bias, I detest it from both parties. I have written about Bob Corker’s (R) diatribes on the GSE’s and his similar half-truths/outright falsehoods about them in an effort to pass legislations that bears his name. Since Warren represents my home state, naturally I hear more of her blathering.

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USA Today:

Massachusetts Sen. Elizabeth Warren took to Facebook on Friday to slam the $10 million donation that former AIG CEO Maurice “Hank” Greenberg made to aid Republican Jeb Bush’s presidential campaign.

Warren, an icon to voters in the Democratic Party’s liberal wing, had this to say about Greenberg’s contribution to Right to Rise, a pro-Bush super PAC:

“So let’s get this straight: CEO Hank Greenberg ran AIG as it recklessly gambled on mortgage-backed securities – and left just before his company took a $182 billion bailout from the Bush Administration. Once his Republican friends were out of office, Greenberg sued the Obama Administration because – get this – the bailout wasn’t generous enough for him. And now, Hank Greenberg is giving $10 million of his AIG fortune to try to save Jeb Bush’s dying Presidential campaign.”

So, let’s take a little look under the hood of these claims:

1- “CEO Hank Greenberg ran AIG as it recklessly gambled on mortgage-backed securities”

AIGFP in London, run by Joe Cassano began investing heavily in mortgage backed securities AFTER, CEO Hank Greenberg left on 2005, NOT during. Below is a basic chart of the investments:

It is also important to note that Greenberg left on March 15, 2005. At that point AIGFP dramatically ramped up the mortgage investments and what was done under his watch is but a small piece of the total. In the 9 months in 2005 after Greenberg left AIGFP made as many mortgage investment as they had made in the previous 7 years and unlike those previous investments, the new ones were tied primarily to subprime loans. In short had Greenberg not left, even had AIG needed a bailout like the other banks did, it would have been a remote fraction of what eventually was needed and the company would have never been anywhere near collapse.

2- “and left just before his company took a $182 billion bailout from the Bush Administration.”

The WSJ:

Although AIG wouldn’t need a bailout until ­September 2008, the seeds of its crisis were sown in 2005. That’s when Eliot Spitzer, New York’s attorney general, piggybacked on a federal investigation of ­reinsurance transactions and forced the company to fire its longtime chief executive, Hank Greenberg. When Mr. Greenberg stepped down on March 14 of that year, the plan was for him to remain as non-executive ­chairman.

But attorneys at Mr. Spitzer’s old law firm—Paul, Weiss, Rifkind, Wharton & ­Garrison—soon dropped a bombshell. Representing AIG, they called Mr. Spitzer and told him that Mr. Greenberg’s lawyers were ­stealing and ­destroying AIG ­documents, Mr. Boyd reports. There ­appears to have been no substance to their charges, but Mr. Spitzer quickly demanded that AIG cut all ties with its former boss. ­As The Wall Street Journal reported at the time, Mr. Spitzer told AIG’s directors that, with Mr. ­Greenberg still around, “you have serious criminal exposure.” AIG soon barred Mr. Greenberg from its offices.

Spitzer never brought criminal charges against AIG and dropped charges against Greenberg. Rather than settling the civil charges, Greenberg is demanding and getting a trial on them and the charges that remain (others were also dropped) are basically irrelevant.

So, Greenberg was “forced out by the NY AG”, he did not “leave” (voluntarily as Warren implies) and HE did not “take” a bailout from the Bush administration (he had nothing to do with it, he was gone 3 years by then) and in fact the company was essentially seized by the government (they owned 79.9% of it post action). Again, don’t let that facts get in the way Liz…

3- “Greenberg sued the Obama Administration because – get this – the bailout wasn’t generous enough for him”

Warren fails to admit that On June 15, 2015, Judge Thomas Wheeler of the United States Court of Federal Claims ruled that the bailout actions by the Federal Government in the AIG case were in fact illegal. In other words, Greenberg was entirely justified in his lawsuit.

Additionally, Warren fails to omit that Greenberg was not suing because the terms “were not generous enough”, he sued because they were unduly harsh. He only wanted AIG treated THE SAME as other institutions. In the decision:

“The Court finds that the first plaintiff class prevails on liability because of the Government’s illegal exaction”.

In contrast to other major bailouts of the Great Recession, the Federal Government took control of 79.9% percent of the company and expelled the chief executive of the company. Judge Wheeler ruled that these conditions were draconian and therefore illegal. The weight of the evidence demonstrates that the Government treated AIG much more harshly than other institutions in need of financial assistance. In September 2008, AIG’s international insurance subsidiaries were thriving and profitable, but its Financial Products Division experienced a severe liquidity shortage due to the collapse of the housing market. Other major institutions, such as Morgan Stanley, Goldman Sachs, and Bank of America, encountered similar liquidity shortages. Thus, while the Government publicly singled out AIG as the poster child for causing the September 2008 economic crisis (Paulson, Tr. 1254-55), the evidence supports a conclusion that AIG actually was less responsible for the crisis than other major institutions.

Now, this is not a defense of Greenberg or to say that even had he stayed AIGFP would not have increased exposure to RMBS securities. We don’t know because Greenberg was gone.  Further I am not saying Greenberg is above reproach. What we do know is just about everything Warren claimed in her facebook rant was, well, false….

Updated on

Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.
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