AIGFP was founded in 1987. Henry Sosin and two others persuaded CEO Hank Greenberg to create a division focused on investments that fed on AIG’s AAA rating. AIGFP had made more than $60 million in the first six months. Sosin left in 1993 and was replaced as CEO by Tom Savage. In 1998, AIGFP had revenue of $500 million and had yet to divulge in credit-default swaps. However, later that year, with the backing of Joe Cassano, who was at the time COO, Savage signed off on the backing of JP Morgan’s complex debt. This is where credit-default swaps were first acted on. These credit-default swaps were a series of payments made to a buyer in which the seller would compensate ...view middle of the document...
By November, AIG’s stock prices had plummeted 25 percent, and AIGFP recognized a loss of $352 million. Even with this, Cassano and Sullivan still tried to convince investors that everything was alright. Losses of $11.8 billion had been calculated by February of 2008. Cassano stepped down as CEO on March 31, but he left with consulting contract worth $1 million a month. In September, credit agencies planned to again drop AIG’s credit rating, causing them to have to have more collateral that they could not back. To insure this did not happen, on September 16, the Federal Reserve took control of 80 percent of AIG when it gave them an $85 billion dollar “loan” or bailout (The Rise).
EXPLANATION OF THE AIG COLLAPSE
“Managers perform several basic managerial functions: planning, directing/leading, organizing, staffing, and controlling. They should manage in a way that brings good people into the organization and makes good people want to stay. Managers, especially immediate supervisors, largely determine whether employees stay with or leave a company” (Crews 5). “Managers should remove employees whose behavior indicates they are not trustworthy to ensure the long-term interests of the company” (Crews 5a). Because of illegal accounting practices and hiding losses through an overseas company, Greenberg was removed from his position. AIG dropped from its AAA rating. Five others received jail time for conspiracy and fraud (Cass Business School 6). AIG had multiple people involved in fraud or conspiracy, showing good people were not brought into this organization and it caused problems. Instead of bringing in ethical employees, AIG brought in those who only cared about results. These employees were involved in illegal practices such as fraud that led to the downfall of AIG.
An ex-AIG executive explained why he thinks that Greenberg was the main cause of the problem. He explains that Greenberg left a gap in the system. While it may not have fallen apart until he left, what he left was not much. Instead, he left a broken workplace. And of course he would! No one wanted to work for him. He was a terrible person (Cohan). This shows us the character of Greenberg. His ethics were not where they should have been and therefore it caused those around him to hate working for him. Managers’ demeanor helps bring in good employees. Because no one wanted to work for Greenberg, it was harder for him to bring in ethical workers. Therefore, those who did stay had similar ideas to Greenberg, and were unwilling to check his unethical behavior that ultimately led to the downfall of AIG.
Also, Greenberg only kept those around who would work as hard as him. He said that a company like AIG is not founded on a normal work schedule. He went on to state that in order to make a company like AIG work, co-workers who believe the same thing and strive for the same ideas are vital (O’Harrow and Brady “The Beautiful Machine”). Training is a...