AIG Founder Asks “Terrorists” for Help

One of the particularly infuriating aspects of the financial crisis is the unapologetic hypocrisy of the Wall Street titans.

These devotees of free markets didn’t hesitate to grab the taxpayer life preservers blithely tossed to them by the U.S. Treasury when they were about to go under. Taxpayers never got a “thank you,” much less “I’m sorry,” from these geniuses who nearly destroyed our economy.

But one among them has set himself apart. I refer to Maurice Greenberg, the founder of American International Group, or AIG. In its prime, AIG was possibly the largest insurance company on the planet, selling everything from life insurance to environmental liability coverage for big corporations.

Greenberg was used to the royal treatment accorded the billionaires at the top of the Money Industry. He pulled in $20 million in 2004 from AIG and an off-the-books executive slush fund the company setup for its top execs.

Like many of his peers at that level, Greenberg was a major player in American politics. AIG and Greenberg’s charities donated tens of millions of dollars to grease the wheels in Washington and keep his company free of regulation.

But unlike many of his insurance brethren, who had figured out that they were usually better off keeping their thoughts to themselves, Greenberg never hesitated to pronounce his views, especially when he thought it was good for business. So Greenberg put himself and his behemoth insurance company at the forefront of “tort reform” – an insurance industry inspired propaganda effort to blame trial lawyers and personal injury lawsuits (“torts”) for higher insurance premiums.

“Tort reform” conveniently diverted public attention from the fact that insurance companies were raising rates in order to offset investment losses in the stock market  - often while friendly state insurance regulators looked the other way. There was another benefit, too. The “solution” advocated by the insurance companies was to restrict the rights of Americans to have their day in court. This usually involved capping damages or attorneys fees, both of which enabled insurance companies to pay out less in claims, and keep more money for themselves. Too many willing state legislatures fell for this trick, though California voters ultimately got it right and capped the insurance industry’s premiums.

Back in 2004, when George Bush and the Corporate Republican Establishment were firmly in control of Washington, “tort reform” was high on their list of priorities. In fact, they expanded their attack, targeting the class action lawsuits that consumers often bring against corporations. Greenberg was a particularly vociferous cheerleader for the push to limit the ability of injured or ripped-off consumers to undertake a class action.

Referring to legislation that would restrict consumers’ ability to bring a class action lawsuit, Reuters reported in 2004 that "Greenberg likened the battle over reforming class action litigation to the White House's 'war on terror.’” Reuters quoted Greenberg as saying, “It's almost like fighting the war on terrorists….I call the plaintiff's bar terrorists."

That was 2004. A year later, Greenberg himself was in a world of legal trouble (PDF). He was ousted in 2005 after an investigation by New York Attorney General Elliot Spitzer found that AIG had engineered a series of sham transactions intended to make AIG’s financial picture look better. In 2006, AIG paid $1.6 billion to settle a variety of charges.

Then came the financial collapse. AIG was at the forefront of the form of Wall Street gambling known as “credit default swaps,” under which AIG would sell insurance on packages of subprime mortgages known as “derivatives.” Though long gone, Greenberg remained AIG’s biggest shareholder, so he lost billions when AIG’s credit default swaps went into default and the Bush Administration took over the company in exchange for a taxpayer bailout that now totals $182 billion.

Ever since then, Greenberg’s been insisting on justice… for himself.

Demanding an investigation of the government’s decision to seize AIG, Greenberg suggested “class-action lawsuits that put people under oath in depositions and discovery.”

A fervent deregulator, Greenberg now blames the federal government for failing to regulate his industry. “I don’t recall any regulator coming to look at the [insurance] holding companies, and if they did, it was a very superficial job,” according to a report on a speech Greenberg gave last year.

In a speech in February, Greenberg had this to say about improving America’s judicial system: “We go around the world preaching about the importance of the rule of law…. We better take a look at America and make sure we have the rule of law here first.”

Back to the Future of Reform with Sen. Chris Dodd

Dodd moves to scale back Consumer Financial Protection Agency plan

In an attempt to lure the Republican votes needed to get a sweeping overhaul through the Senate, the Banking Committee chief is circulating a plan for a less powerful Bureau of Financial Protection.

-- Los Angeles Times, March 2, 2010

Dodd Proposes Financial Protection Committee Housed in Treasury Department

In new attempt to lure the Republican and Democrat votes needed to get semi-sweeping overhaul through Senate, the Banking Committee chief is circulating a plan to create a Financial Protection Committee inside the U.S. Treasury.

-- Los Angeles Times, March 28, 2010

Dodd Proposes Professor of Financial Protection at University of Connecticut

In renewed attempt to lure the Republican and Democrat votes needed to get modest financial fixes through Senate, the Banking Committee chief is circulating a plan to give the University of Connecticut $150,000 to hire a professor to teach the public about financial protection.

-- Los Angeles Times, April 15, 2010

Dodd Proposes Dial 1-900-4Protection Line

In a leisurely attempt to lure the Republican and Democrat votes needed to get itsy-bitsy, not too scary reform bill through Senate, the Banking Committee chief is circulating a plan to set up a 900 number to be answered on weekends by volunteers from credit card customer service departments. Costs of the program will be defrayed by charge of 99 cents per call.

-- Los Angeles Times, May 20, 2010

Dodd Proposes Facebook Financial Protection Page

In further attempt to lure the Republican and Democrat votes needed to get any kind of friggin’ bill through Senate, the soon to retire to the financial industry Banking Committee chief is circulating a plan to create a Facebook page where consumers can share financial protection ideas with each other.

-- Los Angeles Times, June 15, 2010

Dodd Proposes Wall Street Protect Consumers

Fuhghettaboutit.

-- Los Angeles Times, July 4, 2010

Obama to Bailout Cop: Beat It!

The Obama administration, which has increasingly been adopting a can’t do attitude when it comes to putting real teeth into financial regulation, now wants to take out the teeth already in place.

Treasury officials are signaling they’d rather not have the same aggressive special inspector general overseeing the $700 billion federal bailout anywhere near their new $30 billion bank subsidy to encourage lending to small business.

I wrote about that inspector general, Neil Barofsky, a couple of weeks ago, suggesting he was one of the few public officials actually trying to protect our money rather than just acting as a rubber stamp for Wall Street’s raid on the U.S. Treasury.

Barofsky has issued a series of scathing reports raising questions about federal officials’ handling of the Troubled Asset Relief Program.

Treasury officials contend that although the $30 billion would come from unspent TARP funds, it’s technically not TARP. So Barofsky should butt out. Their real reason for not wanting Barofsky around is simple: the banks don’t like him looking over their shoulders.

You can’t blame the banks for that. No doubt it’s a lot more fun to spend your federal handout without some nosy former federal prosecutor scrutinizing every move you make.

But for the Obama administration to go along with it is troubling and baffling. The president promised an unprecedented level of accountability, understanding that openness would go a long way toward restoring credibility in the financial system and the government’s ability to oversee it.

But Treasury officials appear to be more concerned with keeping the bankers happy than they are with keeping them honest.

The news about Barofsky surfaced as the administration appeared to be backing away from its recent embrace of former Fed chief Paul Volcker, who favors limits on bank size and risky financial trading. Predictably, the financial titans were balking at the proposals.

The administration’s move against Barofsky is both bad policy and bad politics. It seems designed to hand live ammunition to the mistrustful antigovernment troops of the Tea Party.

Meanwhile, Congressional Democrats have been quiet on the issue. The president and the Democrats have accomplished what at one time would have been seen as a nearly impossible task: handing the mantle of accountability and openness over to Republicans, who are howling with outrage over the idea of keeping Barofsky away from the small-business lending subsidy.

Rep. Darrell Issa, R-Ca., said earlier this week: “Denying SIGTARP the ability to defend taxpayers sends a chilling message that IGs who conduct real oversight will be punished for holding this Administration accountable.”

At the very least, the administration needs to come to its senses and regain its commitment to transparency. Let Barofsky do his job. The administration should be paying better attention to his criticisms, not trying to get rid of him.