Roddy Boyd - Fatal Risk: A Cautionary Tale of AIGs Corporate Suicide

Contents

Copyright 2011 by Roderick Boyd. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Boyd, Roddy, 1968

Fatal risk : a cautionary tale of AIGs corporate suicide / Roddy Boyd.

p. cm.

Includes index.

ISBN 978-0-470-88980-0 (hardback); ISBN 978-1-118-08429-8 (ebk);

ISBN 978-1-118-08427-4 (ebk); ISBN 978-1-118-08428-1 (ebk)

1. Insurance companiesUnited StatesHistory. 2. American International Group, Inc. History. 3. Federal aidUnited States. 4. Financial crisesUnited States. 5. Global Financial Crisis, 2008-2009. I. Title.

HG8540.A43B69 2011

368.006573dc22

2011001512

To Laura: More than 20 years ago we said that even if we didnt have money or a plan, we had each other and that better days would come. We still have each other, and the better days are here. To enjoy them with you is a treasure and a privilege.

Cast of Characters

AIG

Martin Sullivan, Chief executive officer of AIG until 2008

Steven Bensinger, Chief financial officer of AIG until 2008

William Dooley, Head of AIGs Financial Services Division

Ernie Patrikis, General counsel of AIG until 2006

Anastasia Kelly, General counsel of AIG until 2009

Chuck Lucas, Risk management chief of AIG until 2001 (consultant until 2007)

Robert Lewis, Risk management chief of AIG until 2010

Kevin McGinn, Credit risk management head of AIG

Win Neuger, Global investment chief of AIG until 2009

Michael Rieger, Mortgage-backed securities fund manager at AIG until 2007

Richard Scott, Head of global fixed income at AIG until 2008

Elias Habayeb, CFO of financial services

Chris Winans, Vice president of media relations until 2008

Nicholas Ashooh, Head of corporate communications until 2010

Edward Liddy, CEO of AIG 20082009

International Lease Finance Corporation

Steven Udvar-Hazy, CEO of ILFC until 2009

AIG Financial Products

Howard Sosin, Cofounder, CEO of AIGFP until 1992

Randy Rackson, Cofounder AIGFP until 1992

Barry Goldman, Cofounder AIGFP until 1992

Tom Savage, CEO of AIGFP from 1994 to 2001

Joseph Cassano, CEO of AIGFP from 2001 to 2008

David Ackert, Former head of Transaction Development Group and Energy Group at FP until 2007

Jacob DeSantis, Head of Equities and Commodities at FP until 2008

Jon Liebergall, Former head of Municipal Group and co-head of North American Marketing at FP

Andrew Forster, Head of Asset Finance Group

Alan Frost, Former head of U.S. investment bank and structured securitizations effort

Gary Gorton, (consultant) Yale finance professor and author of FP CDO risk software

Eugene Park, Corporate marketer and former head of structured securitizations

Kelly Kirkland, Consultant and former head of European business at FP

AIG Trading

Gary Davis, Former cofounder AIG Trading

Robert Rubin, Former cofounder AIG Trading

Barry Klein, Former cofounder AIG Trading

AIG Board of Directors

Robert Willumstad, Former AIG CEO and chairman of the board

Frank Zarb, Former AIG chairman of the board

Carla Hills, Former U.S. trade representative

Richard Holbrooke, Former senior U.S. diplomat

Frederick Langhammer, Former CEO at Estee Lauder Cos.

Stephen Bollenbach, Former CEO of Hilton Hotels

C. V. Starr & Co. (ex-AIG)

Maurice Hank Greenberg, Former AIG chief executive officer (until 2005)

Edward Matthews, Former AIG vice chairman, finance

Howard Smith, Former AIG CFO

Bertil Lundqvist, General counsel at C. V. Starr

Goldman Sachs

Gary Cohn Goldman, president and chief operating officer

Lloyd Blankfein, COO

Craig Broderick, Risk management chief

David Viniar, CFO

Andrew Davilman, Managing director, sales

Ram Sundaram, Managing director, prop trading

Daniel Sparks, Partner, mortgage trading

Boies, Schiller & Flexner LLP

David Boies, Lawyer for Greenberg

Lee Wolosky, Lawyer for Greenberg

Nick Gravante, Lawyer for Greenberg

Simpson Thacher & Bartlett

Richard Dick, Beattie Outside adviser to AIG board

Sard Verbinen & Co.

George Sard, Public relations adviser to AIG

The Federal Reserve Bank of New York

Timothy Geithner, President FRBNY

Sarah Dahlgren, Head of supervision FRBNY

Thomas Baxter, General counsel

Kynikos Advisers

Jim Chanos, Kynikos general partner

Chuck Hobbs, Kynikos research chief

Gradient Analytics

Donn Vickrey, Cofounder and research chief

Introduction

Robert Willumstad viewed himself as one of the good guys. Most men do, of course, but he had tried to be one: forthright, a by-the-book kind of guy. He took pride in his handshake being valued in New York and even more pride in his hard work at being the engineer to Sandy Weills dreamer in the construction of Citigroup. At that banking and financial giant, his unit was most assuredly not the one where the Securities and Exchange Commission and attorney general had had a field day; he generated profits , not subpoenas.

In a town full of executives, Willumstad was a businessman, or at least he tried to comport himself like one. Executives were appointed, carried out orders, and were paid what they were paid. A businessman built an enterprise, something that would outlast cycles and trends and perhaps even the man who built it. An executive focused on his mandate and cared for little else; a businessman had to be concerned with the totality of the company. Willumstad had always sought to keep perspective, to think a few moves ahead and solve the problem. That he had tried to do it as a human being and not a glory hound was a point of pride.