Some See Spitzer Role in AIG Crisis

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Spitzer forced Greenberg out of the company he built over nearly 40 years.

Lost by many in the financial markets’ nightmare were ghosts of Wall Street past. Some are blaming the historic $85 billion federal bailout for American International Group Inc. on the relentless pursuit of AIG founder Maurice “Hank” Greenberg by New York’s former attorney general, Eliot Spitzer.

Running the company during this crisis was an AIG management team brought to power after prosecutions by Spitzer, who parlayed his national stature as a Wall Street crusader to the governor’s office, only to resign in disgrace 14 months later.

In 2005, then-Attorney General Spitzer forced Greenberg out of the company he built over nearly 40 years. Spitzer accused Greenberg of conflicts of interest involving a foundation that Spitzer said benefited Greenberg and AIG.

The New York Sun’s editorial put it bluntly: “Among all (of Spitzer’s) mistakes, it’s hard to think of one more catastrophic than his decision to force Maurice ‘Hank’ Greenberg out of the leadership of AIG.”

Business blogs and Republican pundits carried much the same message, accurately noting that Spitzer eventually dropped some of his charges against Greenberg, that Greenberg hasn’t been found guilty of other charges, and that Greenberg continues to fight back in court.

Blaming Spitzer will get a voice from New York Republicans as they try to retain the Senate majority this fall. “When he was attorney general he was on a witch hunt, he’d go after anyone he could to get headlines,” said Senate Majority Leader Dean Skelos. “I look at the pattern form when Hank Greenberg went out, not just the crisis now, and the stock plummeted. It cost taxpayers hundreds of millions of dollars in our pension system.”

Spitzer, silent since his resignation March 17 after being implicated in a federal prostitution investigation, is working for his millionaire father in Manhattan real estate while the prostitution probe continues. It was just two years ago he beat Republican John Faso.

“Don’t blame me,” a bumper sticker seen in Albany says, “I voted for the other John.”

Blaming Spitzer for AIG’s near catastrophe, however, is too easy. The management that replaced Greenberg faced unprecedented challenges that included meltdowns in the subprime mortgage and credit sectors.

“I think the AIG problems were probably even bigger than Hank Greenberg and Eliot Spitzer,” said Professor James D. Cox of the School of Law at Duke University.

Columbia Law Professor John Coffee blames AIG’s own practices: “Ratings agencies don’t downgrade anyone because Eliot Spitzer doesn’t like them.”

But Spitzer’s crusade against Greenberg leaves another lesson. Spitzer was unyielding against Greenberg. AIG relented and booted a scapegoat. That’s because a felony to a firm is fatal. Anything short of that is preferable.

Even as Greenberg, as an individual, fought back, Spitzer knew the public would be on his side. Part of that was because Attorney General Spitzer was — sorry political revisionists — usually right about abuses he fought on Wall Street. Spitzer had smart, tough lawyers on his team, including Eric Dinallo, the current state insurance superintendent who was critical to keeping AIG alive long enough for the bailout.

But Spitzer knew something else about public opinion: One of the few things millionaires with power can’t buy is sympathy. Today, Spitzer is learning that lesson first hand.