Actually, it's like Murder on the Oriente Express, they all did it. But, one major villain is Elliot Spitzer, New York Attorney General and later Governor. While Attorney General, Spitzer targeted Hank Greenburg, president of AIG. Spitzer made such a stink that Greenburg stepped down as president. He never actually brought charges against Greenburg, but he made blood curdling threats which panicked AIG's board.
AIG was Greenburg's personal creation. He had assembled company after company into the biggest insurance company in the world. Greenburg was the only man competent to run AIG. He was a difficult man to work for, and so all the competent people in the organization had left for greener pastures, leaving a corporation staffed with narrow gauge yes men. With Greenburg gone, AIG began to slide down hill. The surviving management began gambling in the "credit default swap" market to make a quick buck.
Credit default swaps are insurance under a silly name. The deal goes like this. The seller, for a small fee, promises to insure some other company's debt against default. They became immensely popular with traders in risky bonds and securities. Give AIG a small cut, and take the rest of the income risk free. What's not to like?
When the market collapsed in September, AIG suddenly had to pay off zillions and it didn't have the money. Eventually we taxpayers paid off $140 billion of AIG's bad bets, making the buyers (Goldman Sachs, Lehman, Merrill Lynch & company) whole. We probably should have flushed the buyers down the drain, but at the time responsible officials (Treasury Secretary Paulson and Fed chairman Bernanke) thought that was just too dangerous. They only flushed Lehman and paid off the others.
If savvy old Hank Greenburg had still been running AIG, this probably would not have happened. Elliot Spitzer drove the man with his finger in the dike away and sure enough, the dike failed.
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