WEBVTT 00:00.830 --> 00:03.020 PROFESSOR ROBERT SHILLER: I'm very pleased that we have Hank 00:03.020 --> 00:04.080 Greenberg here today. 00:04.080 --> 00:07.380 We've already talked about him and his career. 00:07.375 --> 00:09.535 Let me just reiterate it. 00:09.540 --> 00:12.000 It's a most amazing career. 00:12.002 --> 00:17.742 It starts when you landed on D-Day, right? 00:17.742 --> 00:20.632 On Omaha Beach, amazing. 00:20.630 --> 00:22.430 At age 17? 00:22.430 --> 00:22.930 18? 00:22.930 --> 00:25.140 MAURICE ''HANK'' GREENBERG: A little over 18 then. 00:25.140 --> 00:28.140 PROFESSOR ROBERT SHILLER: And this goes way back. 00:28.140 --> 00:33.390 And then, participated in the liberation of Dachau at the 00:33.388 --> 00:35.028 end of World War II. 00:35.030 --> 00:38.960 And then, not to be stopped, was involved in the 00:38.960 --> 00:41.060 Korean War as well. 00:41.060 --> 00:45.970 And then, took over an insurance company, and made it 00:45.970 --> 00:47.980 into the most important insurance 00:47.982 --> 00:51.442 company in the world. 00:51.440 --> 00:55.190 And experienced a number of vicissitudes inherited with 00:55.185 --> 00:56.895 that as well. 00:56.900 --> 01:03.500 So, I was asking Mr. Greenberg, if he would talk 01:03.503 --> 01:09.183 about what he did, how he made this enormous success. 01:13.765 --> 01:17.435 We're interested in finance here, so do something about 01:17.438 --> 01:20.948 how it was financed, but as we've been emphasizing in this 01:20.946 --> 01:26.066 course, it's more than just mathematical CAPM modeling, 01:26.070 --> 01:29.510 it's about incentivizing people, about finding people 01:29.510 --> 01:30.700 with the right character. 01:30.700 --> 01:38.650 And I think that you can tell us about your experiences, and 01:38.650 --> 01:41.870 what you've learned over so many years. 01:41.870 --> 01:43.140 So, I'll turn it over to you. 01:43.140 --> 01:49.020 And then, we'll stop at around 10, and then, we have time for 01:49.016 --> 01:52.226 a few questions from you. 01:52.229 --> 01:53.479 MAURICE ''HANK'' GREENBERG: That's fine. 01:56.270 --> 01:58.820 Good morning. 01:58.820 --> 02:04.950 Let me start, really, picking up where the professor -- 02:04.950 --> 02:07.510 I enlisted in the Army when I was 17. 02:07.505 --> 02:10.795 I hadn't finished high school. 02:10.800 --> 02:12.770 World War II was on. 02:12.770 --> 02:16.800 I felt I wanted to do something, and I was bored. 02:16.800 --> 02:20.090 So, I was able to fix a birth certificate, so 02:20.090 --> 02:22.020 it said I was 18. 02:22.020 --> 02:26.650 And they had no problem taking me, because they weren't 02:26.650 --> 02:27.900 looking too closely. 02:30.440 --> 02:33.940 I went to Europe, went to England first. I got there in 02:33.940 --> 02:37.890 1943, a year before the invasion. 02:37.890 --> 02:40.890 Spent the year training. 02:40.890 --> 02:42.520 Left England, went to the continent, 02:42.520 --> 02:44.390 obviously, on D-Day. 02:44.390 --> 02:47.380 Then, went all the way through Europe, linked up with the 02:47.380 --> 02:49.530 Russians in Linz, Austria. 02:49.525 --> 02:52.035 The war was then over. 02:52.040 --> 02:52.630 Came back. 02:52.630 --> 02:58.200 I had to finish high school, which was a chore. 02:58.200 --> 03:03.120 Coming back after being in a war, and going back to high 03:03.120 --> 03:07.990 school was one of the toughest times in my life, actually. 03:07.990 --> 03:13.690 But I did, went on to college, and law school. 03:13.690 --> 03:16.760 Finished law school when the Korean War broke out. 03:16.760 --> 03:18.320 I was a Reserve officer. 03:18.320 --> 03:22.970 I'd gotten commissioned toward the end of the war. 03:22.970 --> 03:28.720 Spent the year in Korea, separated as a captain. 03:28.720 --> 03:33.590 Came close to staying in the military, because I was fairly 03:33.590 --> 03:39.520 young and moved up pretty well in rank, and was offered -- 03:39.520 --> 03:41.680 tried to incentivize me to stay in the 03:41.680 --> 03:44.600 military, but I didn't. 03:44.600 --> 03:47.670 But I had finished law school, and came back. 03:47.670 --> 03:49.360 I was married by then. 03:49.360 --> 03:55.190 I just married a girl that I met in college. 03:55.190 --> 03:59.110 And had to get a job. 03:59.110 --> 04:02.340 I didn't feel like practicing law. 04:02.339 --> 04:03.029 I didn't think -- 04:03.029 --> 04:04.559 I had a law degree -- 04:04.560 --> 04:08.480 I didn't think I wanted to do that. 04:08.480 --> 04:13.300 I came back from Korea, and the next day went down to 04:13.300 --> 04:17.690 visit some of my friends who I went to law school with, and 04:17.690 --> 04:21.200 it convinced me that I didn't want to practice law. 04:21.200 --> 04:26.380 And as I left their office, I went by an insurance company, 04:26.380 --> 04:28.880 Continental Casualty Company. 04:28.880 --> 04:34.240 And I thought, I'd see if they had a job opening. 04:34.240 --> 04:38.970 And I went in, went up to the personnel director, and he was 04:38.970 --> 04:41.690 kind of nasty. 04:41.690 --> 04:44.920 I had just come back from Korea, and I came back, I had 04:44.920 --> 04:48.830 orders to fly back, so I was really very 04:48.830 --> 04:53.090 untamed at that moment. 04:53.090 --> 04:57.600 You know, just only about four days before that, I still had 04:57.600 --> 04:59.360 mud on my boots. 04:59.360 --> 05:06.180 And so, I went down to the main floor, looked around the 05:06.180 --> 05:08.910 directory, and there was a resident vice president 05:08.905 --> 05:09.805 by the name of [? 05:09.805 --> 05:12.705 Bob Braureid ?]. 05:12.710 --> 05:17.540 I just walked into his office and said, you have a -- 05:17.540 --> 05:21.300 the word I used is not the word I use now -- 05:21.300 --> 05:24.130 you don't have a very good personnel director. 05:24.130 --> 05:29.880 And I was a little more excited than that, and I wound 05:29.880 --> 05:31.540 up getting a job. 05:31.540 --> 05:34.670 And I started as a junior underwriter in 05:34.670 --> 05:37.210 the insurance business. 05:37.210 --> 05:39.700 So, what is a junior underwriter? 05:39.700 --> 05:43.230 You analyze risks and decide whether the company wants to 05:43.230 --> 05:46.890 write those risks or not. 05:46.890 --> 05:50.120 And I had to get a job, because I said I was married 05:50.120 --> 05:52.340 and had responsibilities. 05:52.340 --> 05:55.290 And I kind of liked it. 05:55.290 --> 05:57.530 I was working in what they call the Special Risk 05:57.530 --> 06:01.830 Division, which was different kinds of 06:01.830 --> 06:03.910 risks almost everyday. 06:03.910 --> 06:05.970 Some were sports risks. 06:05.970 --> 06:10.160 Some was accidental deathing for executives. 06:10.160 --> 06:12.400 It was a whole range of different 06:12.400 --> 06:14.830 risks you had to analyze. 06:14.830 --> 06:17.080 I found it interesting. 06:17.080 --> 06:19.510 I became the youngest vice president in the history of 06:19.510 --> 06:22.640 that company, and moved to Chicago where 06:22.640 --> 06:24.640 its head office was. 06:24.640 --> 06:30.610 And about a couple of years later -- 06:30.610 --> 06:32.680 it's a long story so I won't take you through -- 06:32.680 --> 06:37.840 I met Starr, C.V. Starr, who was the founder of the company 06:37.840 --> 06:41.940 that I chair today. 06:41.940 --> 06:49.040 Starr started his company in China in 1919. 06:49.040 --> 06:50.400 Long time. 06:50.400 --> 06:54.570 And obviously during World War II, he had to leave, and came 06:54.570 --> 06:56.590 back to the United States. 06:56.590 --> 07:02.020 And he had a series of small insurance companies then. 07:02.020 --> 07:06.360 I was intrigued with his business, because it operated 07:06.360 --> 07:09.890 outside the United States by and large. 07:09.890 --> 07:12.340 He had one company in the United States called The 07:12.340 --> 07:16.230 American Home, which really was a failure. 07:16.230 --> 07:21.210 It was not doing well, and he was embarrassed by that fact. 07:21.210 --> 07:26.830 That a company that was not doing well that he owned. 07:26.830 --> 07:31.000 His other business: He represented American companies 07:31.000 --> 07:33.180 in doing business overseas. 07:33.180 --> 07:35.960 It was called the AIU, American International 07:35.960 --> 07:37.220 Underwriters. 07:37.220 --> 07:39.370 It was one of a kind. 07:39.370 --> 07:45.760 And it operated mostly in Asia, one or two European 07:45.760 --> 07:53.690 countries, but, by and large, its background was really 07:53.690 --> 07:59.140 Asian, having started in China, as I said, in 1919. 07:59.140 --> 08:05.550 So anyway, I joined Starr and took over The American Home in 08:05.550 --> 08:08.760 New York, which I said was not doing well. 08:08.760 --> 08:10.320 It was a failure. 08:10.320 --> 08:14.230 Now, what was wrong with it? 08:14.230 --> 08:19.310 It did business through agents, and depending upon the 08:19.309 --> 08:23.699 skill of a company, it would determine the quality of the 08:23.700 --> 08:25.830 agents that it had. 08:25.830 --> 08:30.690 And while it was an old company, it had a very poor 08:30.690 --> 08:33.370 agency organization. 08:33.370 --> 08:39.530 And so, the quality of its business was very, very poor. 08:39.530 --> 08:44.490 So, it was losing money year in and year out. 08:44.490 --> 08:47.710 And the job I had was to turn it around. 08:50.570 --> 08:55.790 To cut to that short, I got rid of all the agents, and 08:55.790 --> 08:57.700 went toward the corporate brokerage business. 08:57.700 --> 09:01.680 Instead of writing small businesses, we began writing 09:01.680 --> 09:03.860 large commercial risks. 09:03.860 --> 09:05.640 And we needed a lot of reinsurance. 09:05.640 --> 09:13.700 I went to London, got Lloyd's to back that strategy. 09:13.700 --> 09:18.760 And up to then, most of the large risks were being written 09:18.760 --> 09:20.560 in London at Lloyd's. 09:20.560 --> 09:25.180 Very few American companies had the skills to underwrite 09:25.180 --> 09:28.670 large, complicated risks, whether it was large property 09:28.670 --> 09:34.730 risk, or casualty, or marine, aviation, very difficult risk. 09:34.730 --> 09:41.620 And we assembled a group of quality underwriters, and we 09:41.620 --> 09:42.530 started doing that. 09:42.530 --> 09:47.750 We ultimately became the largest brokerage underwriting 09:47.750 --> 09:50.230 company in the United States. 09:50.230 --> 09:52.340 We were going to run out of capital, we were growing so 09:52.340 --> 09:57.340 rapidly and successfully. 09:57.340 --> 10:00.220 So, I looked around for a couple of other companies that 10:00.220 --> 10:04.350 had the same problems that we had, before 10:04.350 --> 10:06.590 we turned it around. 10:06.590 --> 10:09.960 I found one called the National Union. 10:09.960 --> 10:13.480 We bought that, got rid of all of its agents and agency 10:13.480 --> 10:17.610 business, and consolidated that into American Home. 10:17.610 --> 10:21.570 It kept its identity, because it was a very old company. 10:21.570 --> 10:23.300 It was one of the oldest companies 10:23.300 --> 10:25.860 in the United States. 10:25.860 --> 10:30.080 And then, subsequently, bought the New Hampshire Insurance 10:30.080 --> 10:33.110 Company, did the same thing. 10:33.110 --> 10:36.020 By now it's 19 -- 10:36.020 --> 10:38.120 in the mid '60s. 10:38.120 --> 10:44.840 And by 1967, I created AIG, put a holding company on top 10:44.840 --> 10:50.140 of these three companies, and AIG was born. 10:50.135 --> 10:56.505 In '67, I also became the head of C.V. Starr & Co., which was 10:56.510 --> 11:02.020 the owner, by and large, of these insurance companies. 11:02.020 --> 11:08.270 Starr died in 1968, but he saw the beginning of AIG. 11:08.270 --> 11:10.340 It was formed. 11:10.340 --> 11:14.980 We also owned a life insurance company, called American Life, 11:14.980 --> 11:17.330 that did business outside the United States. 11:17.330 --> 11:21.990 And we consolidated that into AIG, so we had both a life and 11:21.990 --> 11:24.330 a non-life business. 11:24.330 --> 11:26.900 And we were expanding internationally. 11:26.900 --> 11:30.880 We ultimately did business in 130 countries. 11:30.880 --> 11:33.900 We opened markets around the world. 11:33.900 --> 11:36.940 We introduced new types of insurance. 11:36.940 --> 11:40.120 One of the things that made us different was, that we 11:40.120 --> 11:46.720 continued to evolve new products that the business or 11:46.720 --> 11:47.780 individuals needed. 11:47.780 --> 11:51.070 For example, we were the first ones to introduce directors 11:51.070 --> 11:52.520 and officers liability insurance 11:52.515 --> 11:54.405 in the United States. 11:54.410 --> 11:56.420 We introduced political risk insurance. 11:56.420 --> 12:00.280 American companies doing business in very difficult 12:00.280 --> 12:04.510 environments, where their business might be nationalized 12:04.510 --> 12:08.870 or confiscated, we insured against those risks. 12:08.870 --> 12:11.180 We introduced kidnap ransom insurance. 12:11.180 --> 12:15.640 American companies doing business in the 12:15.640 --> 12:18.860 not-so-friendly countries, where some of the employees 12:18.860 --> 12:22.270 might be kidnapped and held for ransom. 12:22.270 --> 12:24.950 We insured against that. 12:24.950 --> 12:29.870 And we put together a unit that helped find them and get 12:29.870 --> 12:30.920 their release. 12:30.920 --> 12:34.080 Sometimes on a friendly basis, sometimes 12:34.080 --> 12:36.010 not so friendly basis. 12:36.010 --> 12:39.780 So, we were very creative in developing products that 12:39.780 --> 12:43.150 American business needed around the world. 12:43.150 --> 12:45.870 We began to diversify, because the insurance business, the 12:45.870 --> 12:50.460 property casualty business, is a very volatile business. 12:50.460 --> 12:52.600 You're subject to earthquakes. 12:52.600 --> 12:54.460 You're subject to hurricanes. 12:54.462 --> 12:59.052 You're subject to different economic environments. 12:59.050 --> 13:02.850 And that affects the outcome of your business. 13:02.850 --> 13:07.670 And so, we wanted to diversify not just within the property 13:07.670 --> 13:10.020 casualty business, but globally. 13:10.020 --> 13:14.040 That's why we entered so many countries around the world, 13:14.040 --> 13:16.270 which gave us diversification. 13:16.270 --> 13:19.710 More diversification in your business provides greater 13:19.710 --> 13:24.590 stability, and that became one of the things that was very 13:24.590 --> 13:26.940 important to us. 13:26.940 --> 13:31.730 We also focused on, what the expense ratio should be. 13:31.730 --> 13:34.760 Most insurance companies are running an expense 13:34.760 --> 13:38.090 ratio of about 30%. 13:38.090 --> 13:43.120 We ran our company with an expense ratio of 19%. 13:43.120 --> 13:44.220 And how'd we do that? 13:44.220 --> 13:46.740 Being the most efficient, using 13:46.740 --> 13:51.850 reinsurance very, very properly. 13:51.850 --> 13:57.230 So, we did a much better job in both developing our 13:57.230 --> 14:00.320 business and managing the business in a more efficient 14:00.320 --> 14:03.190 way than others would do. 14:03.190 --> 14:05.790 And obviously, you have to have an organization. 14:05.790 --> 14:08.810 You have to surround yourself with people, who share the 14:08.810 --> 14:14.360 same values, the same aspirations that you do. 14:14.360 --> 14:17.720 You have to have a team that works hand in 14:17.720 --> 14:19.640 glove, and we did. 14:19.640 --> 14:24.520 The senior management of AIG was like a band of brothers. 14:24.520 --> 14:26.440 We saw things alike. 14:26.440 --> 14:29.620 We worked well together. 14:29.620 --> 14:33.090 I mean, there wasn't ever a palace revolution or 14:33.090 --> 14:33.950 anything like that. 14:33.950 --> 14:37.410 It was a great organization. 14:37.410 --> 14:42.080 We added more diversification, because clearly 14:42.080 --> 14:45.810 diversification was essential. 14:45.810 --> 14:48.010 But in order to do business in many countries, you had to 14:48.010 --> 14:49.240 open the market. 14:49.240 --> 14:53.430 Markets didn't welcome you in many countries. 14:53.430 --> 14:56.680 Take Japan, for example, it was a very closed market. 14:56.680 --> 15:00.510 The Japanese were very reluctant to open their market 15:00.510 --> 15:06.750 to foreign insurers, so we had to force the market open. 15:06.750 --> 15:09.380 And we did. 15:09.380 --> 15:14.100 The U.S. government was very much on our side, and if the 15:14.100 --> 15:19.110 Japanese didn't open their market to us, we worked hard 15:19.110 --> 15:21.960 to keep some of their own companies, whether it was 15:21.960 --> 15:25.340 insurance or otherwise, or other things, from doing 15:25.340 --> 15:27.220 business in the United States. 15:27.220 --> 15:31.630 We didn't hesitate to use the U.S. government to support our 15:31.630 --> 15:35.870 desire to open markets around the world. 15:35.870 --> 15:42.180 When there was negotiation on trade, for example -- most of 15:42.180 --> 15:47.860 the negotiation in the early years was on goods and trade. 15:47.860 --> 15:50.580 Things, not financial services. 15:50.580 --> 15:56.300 Financial services were not negotiated at the world trade 15:56.300 --> 15:59.420 negotiations, the WTO. 15:59.420 --> 16:03.090 We brought that into being. 16:03.090 --> 16:05.650 I served on the President's advisory board for trade 16:05.650 --> 16:07.160 negotiations. 16:07.160 --> 16:10.130 They had never heard of 16:10.130 --> 16:12.940 negotiating financial services. 16:12.940 --> 16:15.910 And it took us a while to get that done, but we did. 16:15.910 --> 16:20.230 We opened the market for financial services to be 16:20.230 --> 16:21.490 negotiated. 16:21.490 --> 16:25.470 And there were rules then that came into existence, so that 16:25.470 --> 16:29.120 you can negotiate trade services. 16:29.120 --> 16:34.110 It wasn't easy, even when the rules were changed, countries 16:34.110 --> 16:35.980 dragged their feet. 16:35.976 --> 16:41.126 It took a long time to open us in Japan and Korea. 16:41.130 --> 16:46.020 China, it took me from 1975, the first time I visited 16:46.020 --> 16:51.650 China, to 1992, to get the first life insurance license 16:51.650 --> 16:54.260 ever granted to a foreign company. 16:54.260 --> 17:00.210 Moreover, while other foreign companies afterwards could 17:00.210 --> 17:02.200 only get a license where they could only own 17:02.200 --> 17:05.440 49%, we owned 100%. 17:05.440 --> 17:09.810 And to date, still, it's the only foreign company in China, 17:09.810 --> 17:15.410 a life insurance company, that owns 100% of the company. 17:15.405 --> 17:16.655 It wasn't easy. 17:16.660 --> 17:19.160 As I say, it took from '75 to '92. 17:19.160 --> 17:23.420 And I visited China every year, a couple of times a 17:23.420 --> 17:25.720 year, to make that happen. 17:25.720 --> 17:27.650 But we did a lot of things for China. 17:27.650 --> 17:30.370 At the same time, we helped China. 17:30.370 --> 17:35.830 I lobbied very hard for China's entry into WTO, which 17:35.830 --> 17:40.730 was very important for our country and for China, and 17:40.730 --> 17:41.450 really for the world. 17:41.450 --> 17:44.760 So, we were very active, and you had to be in foreign 17:44.760 --> 17:46.830 policy matters. 17:46.830 --> 17:49.090 It was linked to our business. 17:49.090 --> 17:53.510 Since we did business, I said, in ultimately 130 countries, 17:53.510 --> 17:56.920 it became essential that we were at the leading edge of 17:56.920 --> 17:59.870 what the foreign policy issues were. 17:59.870 --> 18:04.180 We did business behind the Iron Curtain, before the Iron 18:04.180 --> 18:10.040 Curtain came down, in Hungary, Poland and Romania. 18:10.040 --> 18:15.800 Moreover, I went to the Soviet Union in 1964, during the 18:15.800 --> 18:20.060 height of the Cold War, and began a reinsurance 18:20.060 --> 18:23.960 relationship with them. 18:23.960 --> 18:28.460 And that lasted throughout the years, even during the height 18:28.455 --> 18:31.375 of the Cold War we had a relationship going on. 18:31.380 --> 18:34.240 It wasn't easy. 18:34.240 --> 18:38.090 They thought I was in the CIA, most of the time. 18:38.090 --> 18:42.640 It was a difficult thing, but we persisted. 18:42.640 --> 18:48.760 And when the Iron Curtain came down, we had a head start 18:48.760 --> 18:51.540 against anybody else. 18:51.536 --> 18:56.116 Doing business in Romania, and Hungry, and Poland, before the 18:56.120 --> 18:59.030 Curtain came down, was not easy, but we built 18:59.030 --> 19:04.560 relationships, so that, when it did happen, we had a head 19:04.560 --> 19:06.950 start against anybody else. 19:06.950 --> 19:12.190 We operated all through Latin America, the Middle East, 19:12.190 --> 19:14.080 parts of Africa. 19:14.080 --> 19:17.770 And all those were a story in themselves, because in each 19:17.770 --> 19:22.910 country it was a different environment, and you had to 19:22.910 --> 19:26.790 deal with different personalities and governments. 19:26.785 --> 19:29.155 It was very difficult. 19:29.160 --> 19:31.240 But we also had some basic principles. 19:31.240 --> 19:35.310 We would never, never be involved in a bribe. 19:35.310 --> 19:37.790 Anybody in our company that got involved in anything like 19:37.790 --> 19:40.830 that would be fired instantly. 19:40.830 --> 19:44.390 We understood what the Foreign Corrupt Practices Act meant, 19:44.390 --> 19:49.070 before they even had such a Corrupt Foreign Practices Act. 19:49.070 --> 19:52.060 So, we had a reputation that you didn't tamper 19:52.060 --> 19:52.900 with us that way. 19:52.900 --> 19:56.820 And they knew also that we wouldn't hesitate to retaliate 19:56.820 --> 20:00.230 through our government if necessary, if they tried to 20:00.230 --> 20:02.100 keep us out of their country. 20:02.100 --> 20:04.130 So, we were tough on that basis. 20:04.130 --> 20:08.360 We wanted to open markets, and we did. 20:08.360 --> 20:11.790 You go back, what kind of a structure did we have? 20:11.790 --> 20:17.600 And how do you bring a group of people together that can 20:17.600 --> 20:21.680 work so harmoniously and enthusiastically together. 20:21.680 --> 20:22.970 It's critical. 20:22.970 --> 20:25.670 And to run a business like that, you have to have an 20:25.670 --> 20:32.480 organization that, really, everybody's on the same track, 20:32.480 --> 20:36.510 and everybody is enthusiastic about what they're doing. 20:36.510 --> 20:42.110 Our overseas people, we had what we called an MOP, Mobile 20:42.110 --> 20:43.710 Overseas Personnel. 20:43.705 --> 20:46.345 It was like our own state department. 20:46.350 --> 20:51.350 You can be working in Nigeria today as a manager, and then 20:51.350 --> 20:55.260 six months later you might be in Singapore, 20:55.260 --> 20:56.850 or some other country. 20:56.850 --> 20:59.480 And so, you have to be mobile, and you have to be prepared to 20:59.480 --> 21:03.570 move, and not be reluctant because of 21:03.570 --> 21:05.700 one thing or another. 21:05.700 --> 21:11.390 And becoming an MOP was a very high honor. 21:11.390 --> 21:13.320 Everybody couldn't get that designation. 21:13.316 --> 21:15.456 You had to earn it. 21:15.460 --> 21:19.740 And it was a great group of people. 21:19.740 --> 21:22.790 But how do you motivate people to do that? 21:22.790 --> 21:28.280 How do you get an organization that could be so effective? 21:28.280 --> 21:38.910 AIG at its pinnacle, when I left in 2005, was the, by far, 21:38.910 --> 21:43.140 largest and most profitable insurance company in history. 21:43.140 --> 21:44.660 I mean, think about that. 21:44.660 --> 21:45.910 From a dead stop. 21:48.290 --> 21:52.640 Now, we had a compensation structure that was unique to 21:52.640 --> 21:53.140 the industry. 21:53.140 --> 21:56.630 I mentioned it briefly to the professor. 21:56.630 --> 22:03.790 C.V. Starr & Co., we considered to be the ultimate 22:03.790 --> 22:06.030 company in the group. 22:06.030 --> 22:12.390 It spawned AIG, and so, within the organization, it was 22:12.390 --> 22:16.570 viewed as the top company in the group. 22:16.570 --> 22:24.170 And since we spawned AIG, and put assets into AIG in 22:24.170 --> 22:31.870 exchange for AIG stock, so that C.V. Starr and Starr 22:31.870 --> 22:34.540 International, the two companies, owned in the 22:34.540 --> 22:38.460 beginning, 100% of AIG. 22:38.460 --> 22:42.560 As we grew, and we needed more capital, because we were 22:42.560 --> 22:46.510 growing so rapidly, we had to raise capital, and therefore 22:46.510 --> 22:48.470 we got somewhat diluted. 22:48.470 --> 22:54.960 But even at the end, we controlled about 15% of AIG. 22:54.960 --> 22:59.710 The market cap was close to $200 billion dollars from a 22:59.710 --> 23:03.730 dead stop of $300 million, when we first went public. 23:03.730 --> 23:06.970 From $300 million to $200 billion, one of the largest 23:06.970 --> 23:09.240 companies in the world. 23:09.240 --> 23:12.820 So, we weren't afraid of anybody taking us over. 23:12.820 --> 23:16.840 Nobody was big enough to even attempt that. 23:16.840 --> 23:21.270 But what we did, we had several principles. 23:21.270 --> 23:26.020 Nobody could earn more than $1 million in salary. 23:26.020 --> 23:28.370 I put that rule in. 23:28.370 --> 23:30.960 Two, nobody would have a contract. 23:30.960 --> 23:34.290 You stayed in AIG because you loved it, and you didn't have 23:34.290 --> 23:35.110 to have a contract. 23:35.110 --> 23:40.410 And I refused a contract any number of times. 23:40.410 --> 23:45.950 But you got bonuses based on performance, and performance 23:45.950 --> 23:48.030 was fairly rigid. 23:48.030 --> 23:52.070 We tried to grow our business close to 15% a year, and for 23:52.070 --> 23:56.690 many, many years we achieved that growth. 23:56.690 --> 24:00.790 The private companies that owned AIG stock were not owned 24:00.790 --> 24:04.000 by AIG, but by the private companies. 24:04.000 --> 24:10.330 We set up a structure, where the private companies would 24:10.330 --> 24:14.780 allocate some AIG shares to individuals based on 24:14.780 --> 24:16.310 performance. 24:16.310 --> 24:20.540 At the end of every two years, if we hit the goals that we 24:20.540 --> 24:24.500 had established, they'd have a certain number of AIG shares 24:24.500 --> 24:29.090 set aside for them that they would get at retirement. 24:31.590 --> 24:33.020 So, it was golden handcuffs. 24:33.020 --> 24:37.090 If you left the company, you left behind the shares that 24:37.090 --> 24:39.760 were set aside for you. 24:39.760 --> 24:42.270 And these were worth an awful lot of money. 24:42.270 --> 24:45.090 Very few people left the company. 24:45.090 --> 24:51.270 I can assure you that it was a great incentive to stay. 24:51.270 --> 24:53.360 The people we wanted to stay are the ones that got 24:53.360 --> 24:55.390 allocated shares obviously. 24:55.390 --> 24:57.300 It cost AIG nothing. 24:57.300 --> 25:01.790 The public shareholders of AIG had no cost allocated to that, 25:01.790 --> 25:06.140 so the shareholders of AIG benefited from that, and, 25:06.140 --> 25:08.150 obviously, the company overall benefited 25:08.150 --> 25:09.920 because they did so well. 25:09.920 --> 25:15.360 So, it was a great organization. 25:15.360 --> 25:16.610 So what happened? 25:19.010 --> 25:19.960 In 2000 -- 25:19.960 --> 25:24.090 in the meantime, we had further diversified. 25:24.090 --> 25:26.120 Our life insurance business grew dramatically. 25:26.120 --> 25:31.090 We bought a company called SunAmerica, American General 25:31.090 --> 25:35.220 Life, and so we became a very major life 25:35.220 --> 25:37.200 and non-life company. 25:37.200 --> 25:39.280 And then we wanted to expand into financial 25:39.280 --> 25:42.060 services, which we did. 25:42.060 --> 25:46.200 We had consumer finance. 25:46.200 --> 25:48.970 We had a thrift. 25:48.970 --> 25:53.490 All of which was done, because we could benefit from all the 25:53.490 --> 25:58.000 policyholders that we had, that we cross-market from one 25:58.000 --> 25:59.200 to the other. 25:59.200 --> 26:01.870 And so, it was natural for us to do that. 26:01.870 --> 26:06.680 And we had close to $1 trillion of assets to be 26:06.680 --> 26:07.810 invested, obviously. 26:07.810 --> 26:12.230 And so, we had the funds and the capital that we needed to 26:12.230 --> 26:14.710 finance these new startups. 26:14.710 --> 26:17.070 And that was going quite well. 26:17.070 --> 26:20.540 One day I had a call from Senator Ribicoff, who was a 26:20.540 --> 26:23.660 Connecticut senator at the time. 26:23.660 --> 26:28.980 And he wanted me to meet a young fellow, who was running 26:28.980 --> 26:31.680 a financial services business. 26:31.680 --> 26:35.060 He had been with Drexel originally. 26:35.060 --> 26:37.100 And he came -- he was a very bright guy -- he came to us. 26:37.100 --> 26:41.030 And we started something called AIG Financial Products. 26:41.030 --> 26:43.800 It was a very successful company. 26:43.800 --> 26:46.400 It did derivative business. 26:46.400 --> 26:48.050 Everything was hedged. 26:48.050 --> 26:51.660 It was a very successful operation. 26:51.660 --> 27:00.710 He got a little greedy on one point, and we separated. 27:00.710 --> 27:01.310 He left. 27:01.310 --> 27:07.300 We wanted him to leave. And we put somebody else in, who was 27:07.300 --> 27:08.610 a very, very good man. 27:11.310 --> 27:15.990 Most of these people were all Ph.D.'s in math. 27:15.990 --> 27:19.420 They were a special breed. 27:19.420 --> 27:23.480 They were different, and in order to ensure that we knew 27:23.480 --> 27:28.140 what they were doing, we had a mirror of all the computer 27:28.140 --> 27:32.870 systems that they used for some of the things that they 27:32.870 --> 27:33.920 were doing. 27:33.920 --> 27:37.860 We got one off-site that mirrored every transaction 27:37.860 --> 27:41.250 that was being undertaken. 27:41.250 --> 27:44.800 We also had in the company what they call an enterprise 27:44.800 --> 27:50.930 risk management system, which means we monitored both market 27:50.930 --> 27:54.760 risk and credit risk throughout our organization, 27:54.760 --> 27:58.680 because insurance is a risk business to begin with, and 27:58.680 --> 27:59.810 you have to monitor risk. 27:59.810 --> 28:02.470 So, that was part of our nature. 28:02.470 --> 28:04.080 We understood risk. 28:04.080 --> 28:08.950 And knew how to balance it and how to manage it in the 28:08.950 --> 28:12.550 insurance business and the financial business as well. 28:12.550 --> 28:18.970 After all, we had to invest $1 trillion of assets every year 28:18.970 --> 28:22.870 and growing, so clearly we had to know what we were doing. 28:22.870 --> 28:25.620 And I said it was a very successful company. 28:29.950 --> 28:33.300 In 2000 and -- 28:33.300 --> 28:42.030 I guess it was 2004, the end of 2004, we were reporting our 28:42.030 --> 28:46.930 earnings on a conference call with analysts, and one of the 28:46.930 --> 28:51.030 analysts asked me, what the regulatory environment was 28:51.030 --> 28:53.900 like today. 28:53.900 --> 29:04.270 And I said, it's like a foot fault is like a murder charge, 29:04.270 --> 29:08.710 because things had changed dramatically after Enron in 29:08.710 --> 29:09.860 the United States. 29:09.860 --> 29:15.820 The regulatory system became very, very difficult, and 29:15.820 --> 29:22.700 anything at all really was being exaggerated beyond what 29:22.700 --> 29:26.520 you can just believe. 29:26.520 --> 29:31.740 The next day we got a subpoena from Eliot Spitzer, who then 29:31.740 --> 29:34.690 was the Attorney General in New York. 29:34.690 --> 29:40.490 And I should say a word about this, because there was a 29:40.490 --> 29:45.750 major change in the regulatory environment after Enron, and 29:45.750 --> 29:50.020 in some states, in New York particularly, the Attorney 29:50.020 --> 29:53.230 General's office has been used as a 29:53.230 --> 29:57.000 platform to run for governor. 29:57.000 --> 29:59.500 It became a politicized office. 29:59.500 --> 30:05.620 And Spitzer had gone after me. 30:05.620 --> 30:09.460 He went after my son, Jeff, who was running Marsh & 30:09.460 --> 30:13.370 Mclennan, the largest insurance brokerage firm in 30:13.370 --> 30:16.000 the United States. 30:16.000 --> 30:19.940 He went after Sandy Weill, who was running Citigroup. 30:19.936 --> 30:27.956 He went after Merrill Lynch, all to promote himself as 30:27.960 --> 30:30.880 attorney general who was helping the 30:30.880 --> 30:33.030 people, quote, unquote. 30:33.030 --> 30:37.900 He destroyed several hundred billion dollars of value, is 30:37.900 --> 30:39.520 what he did. 30:39.520 --> 30:43.220 He got elected governor, and you know the outcome of that. 30:43.220 --> 30:49.220 It was a very short tenure. 30:49.220 --> 30:55.130 He got caught with prostitutes and had to resign. 30:55.130 --> 31:01.540 But he left behind a lot of broken companies. 31:01.540 --> 31:07.000 I was forced to leave, because he threatened the board of 31:07.000 --> 31:10.460 directors of AIG, that, if I didn't leave the company, he 31:10.460 --> 31:11.710 was going to indict the company. 31:14.850 --> 31:21.700 He went on national TV, and accused me of accounting fraud 31:21.700 --> 31:23.850 in the company. 31:23.850 --> 31:28.190 Just before Thanksgiving, he dropped all those charges, 31:28.190 --> 31:31.630 because nobody reads the newspapers the night before 31:31.630 --> 31:34.000 Thanksgiving. 31:34.000 --> 31:35.250 He was a bad actor. 31:37.350 --> 31:42.370 So, I left the company in 2005. 31:42.370 --> 31:45.290 The outcome was that -- 31:45.290 --> 31:49.740 the plan actually had been that I would step down as CEO 31:49.740 --> 31:55.430 in May of that year at the annual meeting, and remain as 31:55.430 --> 32:00.710 chairman, and see how the successor team would work. 32:00.710 --> 32:03.580 At that point, we had 92,000 employees, 32:03.580 --> 32:06.720 and not a small company. 32:06.720 --> 32:12.190 To make sure that the new management team would be able 32:12.190 --> 32:15.070 to handle the diverse businesses that we were in. 32:15.070 --> 32:16.880 These were all experienced people. 32:16.880 --> 32:19.390 There was nobody new in that role. 32:19.390 --> 32:23.430 I believe that we wanted it to have the new team come from 32:23.430 --> 32:26.250 within the company, not from outside. 32:26.250 --> 32:30.590 Because they had to understand what we were. 32:30.590 --> 32:33.810 And we had a culture in the organization that was quite 32:33.810 --> 32:36.590 unique, and you can't just change the culture of a 32:36.590 --> 32:39.380 company instantly. 32:39.380 --> 32:42.160 You build a culture over many, many years. 32:42.160 --> 32:46.840 In any event, I was out. 32:46.840 --> 32:52.750 A new chap came in, Martin Sullivan, who had been a 32:52.750 --> 32:56.080 senior man in the organization for years. 32:56.080 --> 33:01.820 He attended every senior staff meeting that we had for years. 33:01.820 --> 33:02.890 We had several different -- 33:02.890 --> 33:05.280 I won't go through all of that -- but several senior 33:05.280 --> 33:09.200 management meetings that were critical to knowing, what was 33:09.200 --> 33:11.500 going on throughout the organization 33:11.500 --> 33:13.460 on a real-time basis. 33:13.460 --> 33:16.370 We'd meet every Monday morning. 33:16.370 --> 33:22.500 About 15 people represented the entire organization. 33:22.500 --> 33:24.650 They'd be reporting on everything that was happening 33:24.650 --> 33:27.110 on a real-time basis. 33:27.110 --> 33:30.600 We did the second meeting, held on a Wednesday every 33:30.600 --> 33:38.540 morning, that dealt with hedging full-time, and risk 33:38.540 --> 33:39.510 management. 33:39.505 --> 33:45.665 And those two subjects were on a real-time basis weekly. 33:45.670 --> 33:48.100 And, of course, there were people working on that on a 33:48.100 --> 33:49.390 daily basis. 33:49.390 --> 33:53.260 But anything that was out of the ordinary would be surfaced 33:53.260 --> 33:55.050 at these meetings. 33:55.050 --> 33:59.050 For some reason or other, he discontinued those meetings. 33:59.050 --> 34:02.000 I can't understand why, but he did. 34:02.000 --> 34:06.630 And what's very disturbing is, that the audit committee of 34:06.630 --> 34:10.530 AIG's board knew that and did nothing about it. 34:10.530 --> 34:15.840 The outcome of that was then, that AIG Financial Products 34:15.840 --> 34:18.560 loaded up on credit default swaps. 34:18.560 --> 34:22.550 They did more credit default swaps in the nine months after 34:22.550 --> 34:26.820 I left the company than we had done in seven years. 34:26.820 --> 34:29.040 Now, let me say something about credit default swaps, 34:29.040 --> 34:32.270 because I think it is important. 34:32.274 --> 34:37.714 A credit default swap originally was created, so 34:37.710 --> 34:41.780 that, if a security -- 34:41.780 --> 34:48.890 in this case CDOs, which was really a product that was 34:48.890 --> 34:52.360 mostly real estate put together, and packaged and 34:52.360 --> 34:54.660 sold as a CDO -- 34:54.660 --> 35:01.850 originally, those instruments had to have a default before a 35:01.850 --> 35:06.410 CDS, a credit default swap, would respond to that 35:06.410 --> 35:09.410 instrument that defaulted. 35:09.410 --> 35:15.710 Someplace along the line, that was changed, so that you 35:15.710 --> 35:17.010 didn't have to -- 35:17.010 --> 35:19.120 the instrument didn't have to default, it 35:19.120 --> 35:22.060 simply had to lose value. 35:22.060 --> 35:26.120 And you had to put up collateral, the one who issued 35:26.120 --> 35:30.370 the credit default swap had to put up collateral equal to 35:30.370 --> 35:33.520 what the loss of value -- 35:33.520 --> 35:38.830 even though it wasn't realized, on what the CDO had 35:38.830 --> 35:41.270 lost in value. 35:41.270 --> 35:48.530 That change played a major role in what happened in the 35:48.530 --> 35:53.490 recession that we've just been going through, particularly on 35:53.490 --> 35:56.070 Wall Street. 35:56.070 --> 35:58.830 Putting up more collateral meant you had to have a lot of 35:58.830 --> 36:00.420 cash on hand. 36:00.420 --> 36:08.150 No matter how big you were, it became a very important issue, 36:08.150 --> 36:12.920 as to the ultimate demise of several companies, including 36:12.920 --> 36:16.180 the problems that AIG ran into. 36:16.175 --> 36:18.745 They were called on for billions and billions of 36:18.750 --> 36:23.310 dollars of collateral, which ultimately -- 36:23.310 --> 36:25.680 I don't care how big you are, you run out of 36:25.680 --> 36:27.860 cash, which they did. 36:31.100 --> 36:34.300 One of the problems was in trying to determine what is 36:34.300 --> 36:41.990 the value of a CDO, since there was no price discovery, 36:41.990 --> 36:44.510 because there was no exchange in what you 36:44.510 --> 36:49.450 traded the CDOs on. 36:49.450 --> 36:53.050 That was, strangely enough, during the Clinton 36:53.050 --> 36:57.010 administration, the Treasury Department, then run by Bob 36:57.010 --> 37:04.370 Rubin, turned down the question of having an exchange 37:04.370 --> 37:07.890 and regulating credit default swaps. 37:07.890 --> 37:12.490 So, you had a situation where every broker dealer had a 37:12.490 --> 37:14.640 different price for a CDO. 37:14.640 --> 37:19.670 And how much collateral did you really need to put up, if 37:19.670 --> 37:24.010 you couldn't tell what the price of one was. 37:24.010 --> 37:28.010 In this instance, Goldman Sachs had the lowest price of 37:28.010 --> 37:33.130 any CDOs that were being called on for collateral. 37:33.130 --> 37:37.420 And since AIG Financial Products did a great deal of 37:37.420 --> 37:40.310 business with Goldman Sachs, they were being called on for 37:40.310 --> 37:41.880 more and more collateral. 37:41.880 --> 37:44.230 They ran out of cash. 37:44.230 --> 37:49.700 Now, the insurance companies were all very, very solvent. 37:49.700 --> 37:51.080 It's state-regulated. 37:51.080 --> 37:55.570 You can't just take their capital for something else. 37:55.570 --> 38:00.030 They were protected, all the policyholders were protected, 38:00.030 --> 38:03.710 under the fact that there was state law and not federal law 38:03.710 --> 38:08.150 that governed the insurance companies. 38:08.150 --> 38:10.610 But AIG ran into the difficulties. 38:10.610 --> 38:11.910 I was not in the company. 38:11.910 --> 38:17.380 I would have handled it much differently had I been there. 38:17.380 --> 38:22.210 I would not have responded to the call for collateral, when 38:22.210 --> 38:24.700 you couldn't tell what the price discovery really was. 38:27.210 --> 38:29.570 I would have said, you know -- 38:29.570 --> 38:32.430 And one other thing, AIG was a AAA rated 38:32.430 --> 38:34.470 company when I was there. 38:34.470 --> 38:39.240 The day I left the company, it lost its AAA rating. 38:39.240 --> 38:43.810 So, if you were AAA rated, you did not have to post 38:43.810 --> 38:45.640 collateral. 38:45.640 --> 38:50.710 If you were not AAA rated, you had to post collateral. 38:50.710 --> 38:55.200 So, AIG ran out of cash. 38:55.200 --> 39:02.070 So, they turned to the Fed for help. 39:02.070 --> 39:05.690 You got to remember, this was now in a time, when Bear 39:05.685 --> 39:09.445 Stearns first got in trouble. 39:09.450 --> 39:16.410 And they found a buyer in J.P. Morgan, which really, J.P. 39:16.410 --> 39:21.590 Morgan got Bear Stearns for nothing, practically. 39:21.590 --> 39:24.020 It was six months in between Bear 39:24.020 --> 39:27.640 Stearns and Lehman Brothers. 39:27.640 --> 39:30.900 What did they do during that six months, the government 39:30.900 --> 39:37.690 that is, to prepare for any kind of financial upheaval? 39:37.690 --> 39:43.470 There was no plan to deal with what was about to descend in 39:43.470 --> 39:46.240 the financial markets in the United States. 39:46.240 --> 39:52.320 So, Lehman Brothers, who could have been saved by the Fed, 39:52.320 --> 39:54.000 was let to go down. 39:54.000 --> 39:57.080 And that caused a run on virtually all the banks. 39:57.080 --> 40:01.970 The loss of confidence that ensued, when Lehman Brothers 40:01.970 --> 40:08.520 was let go into bankruptcy, startled the financial world. 40:08.520 --> 40:11.470 And everybody that had any money in any of the investment 40:11.470 --> 40:14.240 banks, or banks, was pulling money out. 40:14.240 --> 40:15.780 And so, there was a -- 40:15.780 --> 40:17.740 you couldn't borrow any money. 40:17.740 --> 40:20.760 The markets froze. 40:20.760 --> 40:24.020 And so, there was an ad hoc approach to doing things. 40:24.020 --> 40:29.250 So, Goldman Sachs and Morgan Stanley, both of which were 40:29.250 --> 40:32.080 going to have a problem, were given a bank 40:32.080 --> 40:35.180 holding company license. 40:35.180 --> 40:39.800 That gave them access to the Fed window, and they could 40:39.800 --> 40:44.650 borrow money at virtually no costs at all, practically. 40:44.650 --> 40:48.270 The Hartford Insurance Company, here in Hartford, a 40:48.270 --> 40:51.290 medium-sized company, was also given a bank 40:51.290 --> 40:53.320 holding company license. 40:53.320 --> 40:56.310 And AIG was denied one. 40:56.310 --> 41:00.350 So, AIG was left to really find a solution. 41:00.350 --> 41:04.940 So, they went to the Fed, the New York Fed, which I had 41:04.940 --> 41:09.240 chaired, incidentally, for about seven years before. 41:09.240 --> 41:14.290 So, I knew the people in the Fed quite well. 41:14.290 --> 41:20.200 They borrowed $85 billion from the New York Fed at 14.5% 41:20.200 --> 41:26.080 interest. And the Fed took 79.9% of the 41:26.080 --> 41:29.150 equity of the company. 41:29.150 --> 41:33.170 So, they essentially nationalized the company. 41:33.170 --> 41:41.650 Now, the money that AIG got, the $85 billion, at these 41:41.650 --> 41:47.890 terms, which is outrageous, they then had to pay the CDOs 41:47.890 --> 41:50.880 that you couldn't tell what the real price was, because 41:50.880 --> 41:53.020 there was no price discovery. 41:53.020 --> 41:59.420 You could have negotiated the value of those at about $0.40 41:59.420 --> 42:03.840 to $0.60 on the dollar, but the Fed made them pay 100 42:03.840 --> 42:05.790 cents on the dollar. 42:05.790 --> 42:10.340 So, AIG borrowed the money, paid Goldman Sachs and others 42:10.340 --> 42:12.840 100 cents on the dollar, and had to pay that 42:12.840 --> 42:16.760 money back to the Fed. 42:16.760 --> 42:21.020 So, things began to unravel very quickly after that. 42:21.020 --> 42:24.010 They obviously lost credibility in the 42:24.010 --> 42:25.380 marketplace. 42:25.380 --> 42:28.150 They were losing business left and right. 42:28.150 --> 42:31.780 They had to pay back the government. 42:31.780 --> 42:34.930 So, one thing led to another. 42:34.930 --> 42:39.840 The Treasury put in a man by the name of Ed Liddy to run 42:39.840 --> 42:41.130 the company. 42:41.130 --> 42:45.410 He'd be on nobody's list to succeed running AIG. 42:45.410 --> 42:48.500 He hadn't got a clue how to do that. 42:48.500 --> 42:53.470 And they began to sell off assets of AIG, really at 42:53.470 --> 42:57.220 prices that were just outrageous. 42:57.220 --> 43:01.200 So, the outcome is, that AIG is a shadow 43:01.200 --> 43:03.760 of what it had been. 43:03.760 --> 43:08.650 The government now owns 92% of AIG. 43:08.650 --> 43:11.830 They want to sell that 92%. 43:11.830 --> 43:15.880 It'll take at least, in my view, three to four years, 43:15.880 --> 43:17.290 because it's an overhang. 43:17.286 --> 43:23.176 If they sell 10%, everybody knows there's another 80% to 43:23.180 --> 43:28.270 be sold, and so the stock will go no place. 43:28.270 --> 43:31.670 So, do I feel bitter about it? 43:31.670 --> 43:33.410 Yes I do. 43:33.410 --> 43:36.160 I feel very bitter about it. 43:36.160 --> 43:38.570 So, what am I doing? 43:38.570 --> 43:42.010 I'm running C.V. Starr & Co. and Starr International. 43:42.010 --> 43:46.450 We're building it back into a major organization. 43:46.450 --> 43:51.870 When I left AIG, C.V. Starr & Co. had 300 people. 43:51.870 --> 43:54.220 We're about 1000 right now, so we're adding 43:54.220 --> 43:56.660 employment to the country. 43:56.660 --> 44:00.350 And that's coming along. 44:00.350 --> 44:02.890 We've formed three new insurance companies. 44:02.890 --> 44:06.650 We're doing business in probably about 30 44:06.650 --> 44:08.200 countries right now. 44:08.200 --> 44:11.470 We have a big Lloyd's operation. 44:11.470 --> 44:15.470 We operate throughout the European market. 44:15.465 --> 44:17.695 I'm going to China next week. 44:17.700 --> 44:23.530 We'll have a joint venture in China by the end of April. 44:23.530 --> 44:26.370 We'll be in Southeast Asian countries, all of which we 44:26.370 --> 44:29.080 know for years and years. 44:29.080 --> 44:32.590 And we have a big investment operation. 44:32.590 --> 44:35.000 I'm giving you a shorthand version of 44:35.000 --> 44:36.750 what really is happening. 44:39.470 --> 44:41.390 How much time do I got? 44:41.394 --> 44:42.784 PROFESSOR ROBERT SHILLER: Nine or ten minutes. 44:42.780 --> 44:44.760 MAURICE ''HANK'' GREENBERG: All right. 44:44.760 --> 44:53.770 So, I think there's a lot to be just thinking about. 44:53.770 --> 44:58.390 Why did we get into this trouble in the country? 44:58.390 --> 45:00.690 What's this about? 45:00.690 --> 45:05.170 How could a country as wise as we are, and financially 45:05.170 --> 45:10.960 literate as we are, do what we did? 45:10.960 --> 45:13.900 And I have my own thoughts about that, but let me just 45:13.900 --> 45:16.440 rattle some of the reasons off their thing. 45:16.440 --> 45:20.030 There was a desire in this country, during the Clinton 45:20.030 --> 45:24.540 Administration, that housing should be an 45:24.540 --> 45:26.620 opportunity for everybody. 45:26.620 --> 45:29.550 Everybody should have the right to own a home. 45:29.550 --> 45:33.430 There wasn't much differentiation, whether you 45:33.430 --> 45:36.890 can afford one or not. 45:36.890 --> 45:41.620 Historically, in our country, mortgages were granted by 45:41.620 --> 45:45.800 local banks, who knew the individual, and would work 45:45.800 --> 45:48.220 with that individual, if they got into any trouble. 45:51.000 --> 45:54.830 When the Clinton administration decided to 45:54.830 --> 45:58.730 expand housing, Fannie Mae and Freddie Mac were buying 45:58.730 --> 46:01.150 mortgages from these local banks. 46:01.150 --> 46:04.380 And local banks only serviced the mortgage, but they really 46:04.380 --> 46:08.610 didn't have any financial involvement after the 46:08.610 --> 46:10.510 mortgage was sold. 46:10.510 --> 46:14.740 And clearly many people got mortgages in homes that 46:14.740 --> 46:16.740 couldn't afford it. 46:16.740 --> 46:19.970 So, that was one thing, that was going to lead up to, 46:19.970 --> 46:23.290 ultimately, a problem. 46:23.290 --> 46:28.850 Second, investment banks in the United States were 46:28.850 --> 46:35.100 leveraging their capital 30 and 40 times. 46:35.095 --> 46:36.905 It was outrageous. 46:36.910 --> 46:41.040 Going from, say, five and six times, or seven times your 46:41.040 --> 46:45.920 capital to 40 and 50 and 30 times your capital, was 46:45.920 --> 46:48.630 obviously a risk that shouldn't have been taken. 46:48.630 --> 46:53.300 The SEC just ignored that fact. 46:53.300 --> 46:53.950 Why? 46:53.950 --> 46:55.780 It's hard to understand. 46:55.780 --> 46:59.790 But it was clear that it was setting in motion some 46:59.790 --> 47:04.190 conditions that would be very difficult to live with on a 47:04.190 --> 47:06.210 real-time basis. 47:06.210 --> 47:09.420 And, of course, it was going to cause problems. 47:09.420 --> 47:15.010 Then, some of these investment banks said, look, our job is 47:15.010 --> 47:17.500 to be creative and create products. 47:17.500 --> 47:21.870 So, they took some of these mortgages that were being now 47:21.870 --> 47:27.720 written for people, who didn't have, really, the 47:27.720 --> 47:29.600 right to own a home. 47:29.600 --> 47:31.840 They just didn't have the financial needs. 47:31.840 --> 47:34.080 They didn't have the financial background for it. 47:34.082 --> 47:38.792 And they packaged these mortgages into a product. 47:38.790 --> 47:41.640 They took mortgages, they said, from the east to the 47:41.640 --> 47:44.540 west to the south, and the northeast, 47:44.540 --> 47:45.250 put them all together. 47:45.250 --> 47:53.240 They said, the diversification is terrific, and that means, 47:53.240 --> 47:55.480 it'll be marked AAA. 47:55.480 --> 47:57.890 They went to the rating agencies, and sold the rating 47:57.890 --> 48:03.490 agencies, Moody's and the rest, that this 48:03.490 --> 48:06.280 diversification -- 48:06.280 --> 48:08.280 they deserve a AAA rating. 48:08.280 --> 48:11.470 And the rating agencies accommodated them, didn't do 48:11.470 --> 48:16.580 very much analysis of their own, and they were marked AAA. 48:16.580 --> 48:20.300 And they sold these mortgages then, these products, these 48:20.300 --> 48:24.450 CDOs, to every client and customer they could find all 48:24.450 --> 48:26.130 around the world. 48:26.130 --> 48:29.420 And, of course, they weren't AAA. 48:29.420 --> 48:36.890 And then, as I said earlier, these credit default swaps, 48:36.890 --> 48:41.780 that would respond to normally a default, had been changed, 48:41.780 --> 48:45.790 so that you responded to just a reduction in value. 48:48.510 --> 48:51.100 It blew up in everybody's face. 48:51.100 --> 48:54.910 The same time they were doing all of this, the Accounting 48:54.910 --> 49:01.400 Principles Board, located here in Connecticut, came out with 49:01.400 --> 49:03.110 mark-to-market accounting. 49:05.760 --> 49:09.970 Couldn't have picked a worse time to do that. 49:09.970 --> 49:14.360 And that marked balance sheets, that you normally 49:14.360 --> 49:18.920 would carry, say, at cost, or held to maturity, where you 49:18.920 --> 49:20.080 keep the value -- 49:20.080 --> 49:23.870 you had to mark it down to a market value. 49:23.870 --> 49:27.280 And that destroyed capital 49:27.280 --> 49:30.180 artificially in many instances. 49:30.180 --> 49:31.350 That never should have happened. 49:31.345 --> 49:37.295 The SEC, who oversees that, kept silent. 49:37.300 --> 49:40.770 So, you had all of these things come together, at the 49:40.770 --> 49:45.920 same time, that led to the destruction that took place. 49:45.920 --> 49:47.300 There are other things that happened. 49:47.300 --> 49:51.780 I could go through a list of them, but I don't think the 49:51.780 --> 49:57.360 real story, on what truly occurred in our country, has 49:57.360 --> 49:59.800 been fully recognized yet. 49:59.800 --> 50:01.270 Jelling will take a while. 50:01.270 --> 50:05.050 There have been a lot of books written, but jelling on parts 50:05.050 --> 50:08.060 of it, not the entire issue. 50:08.060 --> 50:13.330 I testified before a couple of congressional committees on 50:13.330 --> 50:16.660 this, particularly on the AIG issue. 50:16.660 --> 50:22.590 For example, by what right did the government have to take, 50:22.590 --> 50:27.470 essentially, 92% of AIG? 50:27.466 --> 50:29.796 To me, it was an unlawful taking. 50:33.030 --> 50:36.140 What should have been done, and if you look at the other 50:36.140 --> 50:39.260 companies that they aided -- 50:39.260 --> 50:44.050 they aided Citigroup and they got about 30% of the equity. 50:44.050 --> 50:47.120 That's different than 92%. 50:47.120 --> 50:52.120 And they aided several other companies the same way. 50:52.120 --> 51:02.390 So, why was AIG set aside and used the way it was? 51:02.390 --> 51:04.390 AIG was a national asset. 51:04.390 --> 51:07.120 We have no insurance company that operates 51:07.120 --> 51:10.390 globally in 130 countries. 51:10.390 --> 51:12.760 When I tell you it was a national asset, I know what 51:12.760 --> 51:16.500 I'm talking about, because we did many things that were 51:16.500 --> 51:20.630 beneficial to our country and our government. 51:20.630 --> 51:24.490 It was totally destroyed. 51:24.490 --> 51:25.690 They saved Goldman -- 51:25.690 --> 51:31.300 AIG was used to save many, including Goldman Sachs. 51:31.300 --> 51:34.240 But that story will come out. 51:37.620 --> 51:40.980 It's been alleged already in the newspapers, and in 51:40.980 --> 51:44.770 articles, and magazines, and you have it. 51:44.766 --> 51:50.556 But anyway, I think I'll stop right here and take questions. 51:50.558 --> 52:12.538 [SIDE CONVERSATION] 52:12.540 --> 52:18.460 STUDENT: So, when you were talking about the culture of 52:18.457 --> 52:20.577 your organization, you mentioned that you do not 52:20.577 --> 52:24.657 prefer having contracts with your employees. 52:24.660 --> 52:27.000 And I'm wondering what that means not to have contracts, 52:27.000 --> 52:29.890 and why do you do it? 52:29.890 --> 52:30.750 MAURICE ''HANK'' GREENBERG: I didn't quite understand. 52:30.753 --> 52:33.783 PROFESSOR ROBERT SHILLER: About your contracts. 52:33.780 --> 52:34.320 MAURICE ''HANK'' GREENBERG: Yeah. 52:34.320 --> 52:39.990 I didn't think that you ought to hold and have a contract, 52:39.990 --> 52:41.660 that you stay if you weren't doing the job. 52:44.270 --> 52:45.610 But you have to start someplace and it 52:45.610 --> 52:46.460 started with me. 52:46.460 --> 52:49.490 I refused a contract. 52:49.490 --> 52:53.410 I thought that, if I wasn't doing the job, I shouldn't be 52:53.410 --> 52:55.070 forced to stay in the company. 52:55.070 --> 52:58.380 They should have the right to have a new CEO, 52:58.380 --> 53:00.530 so I turned it down. 53:00.530 --> 53:02.450 PROFESSOR ROBERT SHILLER: Is that because the contract 53:02.450 --> 53:04.370 couldn't be explicit? 53:04.370 --> 53:05.700 MAURICE ''HANK'' GREENBERG: Well, no. 53:05.700 --> 53:08.870 Say, that, if you have a five-year contract, at the end 53:08.870 --> 53:11.980 of three years, if the company's not doing well, why 53:11.980 --> 53:14.900 should the company be forced to keep you 53:14.900 --> 53:16.150 for two more years? 53:28.080 --> 53:29.710 If you don't ask me a question, I'll 53:29.710 --> 53:30.960 ask you some questions. 53:33.620 --> 53:43.980 STUDENT: I guess, this is more of a personal question. 53:43.976 --> 53:45.646 I was wondering what -- 53:45.654 --> 53:49.574 so, we're all in school, and we don't have jobs yet. 53:49.566 --> 53:52.026 And so, in thinking about careers, it's an important 53:52.030 --> 53:54.100 decision, so, I wondering what made you 53:54.100 --> 53:55.150 really enjoy your job. 53:55.150 --> 53:56.690 Was it the success you had? 53:56.690 --> 53:59.640 Was it the day-to-day activities? 53:59.640 --> 54:05.260 Was it the impact you made on being part of AIG? 54:05.260 --> 54:05.510 MAURICE ''HANK'' GREENBERG: Well, I 54:05.510 --> 54:06.500 think it's many things. 54:06.500 --> 54:08.900 You have to love what you do, to begin with. 54:08.900 --> 54:11.070 And I love building. 54:11.070 --> 54:14.220 And I loved working with the group of people that we had. 54:14.220 --> 54:17.260 It was a very close group. 54:17.260 --> 54:21.370 And it's a lot of fun opening new markets, and beating our 54:21.370 --> 54:22.980 competitors. 54:22.980 --> 54:25.830 It was a very satisfying experience. 54:25.830 --> 54:27.940 And you have to love it. 54:27.940 --> 54:31.210 The other thing I would say, you need a lot of energy. 54:31.210 --> 54:35.710 You have to want -- you know, work should not be viewed as, 54:35.710 --> 54:39.610 say, from nine to five. 54:39.610 --> 54:42.130 You work as long as you have to because you love doing it. 54:55.078 --> 54:58.578 STUDENT: It also kind of reminds me of Bear Stearns, 54:58.580 --> 55:03.080 and another very experienced chairman, Ace Greenberg, kind 55:03.076 --> 55:04.816 of warning his board-- 55:04.820 --> 55:07.010 MAURICE ''HANK'' GREENBERG: I'm not hearing you. 55:07.013 --> 55:08.903 STUDENT: This is on? 55:08.897 --> 55:12.197 Like, AIG, the story of AIG really reminds me of Bear 55:12.200 --> 55:12.700 Stearns' fall. 55:12.697 --> 55:16.157 And of a really experienced board member pointing out that 55:16.156 --> 55:18.916 what the company was doing wasn't great. 55:18.920 --> 55:23.980 So, can you talk to, I guess, the idea of having experience 55:23.980 --> 55:27.570 in this field, and the fact that companies were kind of -- 55:27.570 --> 55:30.560 boards weren't working, was also a core problem of the 55:30.560 --> 55:31.420 financial crisis. 55:31.420 --> 55:34.270 So, can you tell me a little bit more about that and how 55:34.274 --> 55:36.574 you felt afterwards? 55:36.570 --> 55:38.140 MAURICE ''HANK'' GREENBERG: I didn't quite hear that. 55:38.140 --> 55:39.540 Did you hear? 55:39.540 --> 55:39.910 PROFESSOR ROBERT SHILLER: Boards 55:39.910 --> 55:43.390 were not working properly. 55:43.390 --> 55:44.550 MAURICE ''HANK'' GREENBERG: Boards were not working 55:44.550 --> 55:46.540 properly is absolutely right. 55:49.720 --> 55:53.620 There was a lead director in the company -- 55:53.620 --> 55:57.210 if you go back through the history of AIG, we had some 55:57.210 --> 56:00.950 outstanding people on the board. 56:00.950 --> 56:04.410 Over a period of time, some retire, some die. 56:04.410 --> 56:06.470 But we had a pretty good board. 56:06.470 --> 56:09.850 Carla Hills, for example, was on the board, and she was an 56:09.850 --> 56:11.460 outstanding director. 56:11.460 --> 56:19.390 She had been in the cabinet of George Bush, the first. She 56:19.390 --> 56:22.850 was a terrific director. 56:22.850 --> 56:24.620 Bill Cohen, who had been secretary of 56:24.620 --> 56:28.920 defense, was a director. 56:28.920 --> 56:33.320 Dick Holbrooke, who recently died, was a director. 56:33.320 --> 56:36.020 So, we have had some good directors. 56:36.020 --> 56:39.630 On the other hand, when Spitzer threatened the 56:39.630 --> 56:44.600 company, many of them just folded. 56:44.600 --> 56:49.270 Not Carla Hills and not Bill Cohen, but many others. 56:49.270 --> 56:53.350 And you don't know, how people are going to respond until 56:53.350 --> 56:57.730 they're confronted with an issue. 56:57.730 --> 57:00.270 But there's no question that the board failed, in my 57:00.270 --> 57:03.730 judgment, to recognize what was happening after I left. 57:13.078 --> 57:15.538 STUDENT: So, China has recently been experiencing 57:15.538 --> 57:16.518 rapid growth. 57:16.522 --> 57:19.552 How do you think their growth, the change toward a 57:19.551 --> 57:20.781 consumption model, will change the 57:20.778 --> 57:24.368 insurance industry in China? 57:24.372 --> 57:26.142 PROFESSOR ROBERT SHILLER: China, you're saying, has been 57:26.136 --> 57:26.836 growing rapidly. 57:26.840 --> 57:27.840 MAURICE ''HANK'' GREENBERG: What is? 57:27.840 --> 57:29.030 STUDENT: How will that change the 57:29.031 --> 57:31.661 insurance industry in China? 57:31.655 --> 57:33.805 PROFESSOR ROBERT SHILLER: The insurance industry in China, 57:33.812 --> 57:39.262 how is it changing with their rapid growth? 57:39.260 --> 57:40.550 MAURICE ''HANK'' GREENBERG: It's changed dramatically. 57:40.550 --> 57:44.780 The largest insurance company in the world today, by market 57:44.780 --> 57:48.710 value, is China Life. 57:48.710 --> 57:53.040 Amazing growth in China, and you expected it. 57:53.040 --> 57:56.090 China has passed the United States in the number of 57:56.090 --> 57:58.540 automobiles being sold a year. 57:58.540 --> 58:01.430 They all have to be insured. 58:01.430 --> 58:04.820 So, the growth in the insurance industry in China is 58:04.820 --> 58:06.070 very rapid. 58:10.570 --> 58:15.990 Very immature in many ways in understanding risk, but 58:15.990 --> 58:16.900 that'll change. 58:16.900 --> 58:19.280 They've come a long ways. 58:19.280 --> 58:23.260 When I first went to China, and we entered our life 58:23.260 --> 58:27.360 company, the life insurance industry in 58:27.360 --> 58:29.700 China was very small. 58:29.700 --> 58:32.480 And they didn't have agents selling life insurance. 58:32.480 --> 58:37.350 They had their employees selling life insurance. 58:37.350 --> 58:43.020 So, if an employee sold something, he would get paid, 58:43.020 --> 58:46.110 and he'd get paid whether he sold or not. 58:46.110 --> 58:48.340 So, they had a fixed expense. 58:48.340 --> 58:53.660 We introduced an agency system in China, and recruited 58:53.660 --> 58:56.480 thousands of agents. 58:56.480 --> 58:58.780 And they got commissions, if they sold something. 58:58.780 --> 59:02.350 If they didn't sell, they didn't get a commission. 59:02.350 --> 59:05.760 The Chinese companies quickly adapted to our system. 59:05.760 --> 59:08.320 So, you can say that we created millions and millions 59:08.320 --> 59:09.810 of jobs in China. 59:14.220 --> 59:15.020 STUDENT: Thank you. 59:15.020 --> 59:18.560 I'm just wondering what you do you think of Chartis and 59:18.560 --> 59:21.870 SunAmerica, currently sub-businesses, and how you 59:21.870 --> 59:26.860 would evaluate Robert Benmosche as the current CEO. 59:26.860 --> 59:27.990 MAURICE ''HANK'' GREENBERG: Look, I've known Bob Benmosche 59:27.990 --> 59:32.860 for 15, 20 years, and he's a decent man. 59:32.860 --> 59:34.360 He's a good man. 59:34.360 --> 59:39.140 And he's, I think, a pretty good leader. 59:39.140 --> 59:42.360 He has very little experience internationally, and his 59:42.360 --> 59:46.300 experience has been in the life insurance sector, not in 59:46.300 --> 59:48.780 the non-life sector. 59:48.780 --> 59:53.990 One of the largest components of AIG is the non-life sector, 59:53.990 --> 1:00:00.090 so he's got a hard job in front of him. 1:00:00.090 --> 1:00:04.110 Also, the most valuable assets have been sold. 1:00:04.110 --> 1:00:10.580 The AIA, which is the company that's entered in China, that 1:00:10.580 --> 1:00:15.740 AIG owns 100% of, they sold that, which I 1:00:15.740 --> 1:00:16.870 wouldn't have done. 1:00:16.865 --> 1:00:21.905 And they sold American Life to Metropolitan Life. 1:00:21.910 --> 1:00:25.780 That company does business in 55 countries around the world. 1:00:25.780 --> 1:00:27.560 You can't replicate that. 1:00:27.560 --> 1:00:29.280 I wouldn't have sold that. 1:00:29.280 --> 1:00:34.050 So, AIG is a shadow of what it was before. 1:00:34.050 --> 1:00:36.970 Benmosche's got a tough job. 1:00:36.970 --> 1:00:40.360 He doesn't know the non-life business very well. 1:00:40.360 --> 1:00:44.440 And the culture of the company is gone. 1:00:44.440 --> 1:00:47.610 Most of the people who worked there, who were some of the 1:00:47.610 --> 1:00:49.160 better people, have left. 1:00:51.930 --> 1:00:57.060 Many have come to me, and are working in C.V. Starr & Co., 1:00:57.060 --> 1:00:59.510 and in our agencies and our insurance companies. 1:01:02.628 --> 1:01:05.388 It's going to be a tough job, but he's a good man. 1:01:05.390 --> 1:01:08.750 I like him. 1:01:08.750 --> 1:01:10.160 STUDENT: Good morning. 1:01:10.160 --> 1:01:13.660 During your speech, you get to the destructive power of 1:01:13.660 --> 1:01:15.420 credit default swaps. 1:01:15.420 --> 1:01:18.230 And what I find interesting is, different countries have 1:01:18.228 --> 1:01:19.568 taken a very different approach. 1:01:19.570 --> 1:01:22.390 Some European countries have absolutely banned credit 1:01:22.390 --> 1:01:23.300 default swaps. 1:01:23.300 --> 1:01:25.570 China, most notably, introduced them in the market 1:01:25.570 --> 1:01:28.720 recently, but put a cap on the value with 1:01:28.720 --> 1:01:30.410 the underlying amount. 1:01:30.410 --> 1:01:33.410 So my question really is, what sort of regulation do you 1:01:33.413 --> 1:01:36.483 think would work well, both at a national level and, 1:01:36.480 --> 1:01:39.560 possibly, the international level? 1:01:39.560 --> 1:01:41.280 MAURICE ''HANK'' GREENBERG: That's a good question. 1:01:41.280 --> 1:01:43.400 I would do at least two things. 1:01:43.400 --> 1:01:47.810 First, I would go back to where a credit default swap 1:01:47.810 --> 1:01:51.530 would only respond if the underlying instrument, that it 1:01:51.530 --> 1:01:55.960 is supposedly insuring, defaults. 1:01:55.960 --> 1:01:59.230 In other words, I would not respond to just a reduction in 1:01:59.230 --> 1:02:06.480 value, because if you look at all those CDOs, that the 1:02:06.480 --> 1:02:09.750 credit default swaps were covering, most of those have 1:02:09.750 --> 1:02:12.050 recovered in value. 1:02:12.050 --> 1:02:16.750 OK, so that there was a temporary reduction in value, 1:02:16.750 --> 1:02:19.140 but they didn't default. 1:02:19.140 --> 1:02:22.540 And so, what it led to was unnecessary 1:02:22.540 --> 1:02:24.150 chaos in the market. 1:02:24.150 --> 1:02:29.400 The second thing, I would have is an exchange, where you get 1:02:29.400 --> 1:02:31.760 price discovery. 1:02:31.760 --> 1:02:34.790 Without price discovery, you're back where you were, 1:02:34.785 --> 1:02:36.835 and so you have to have that. 1:02:36.840 --> 1:02:39.270 And you'd have to put up reserves. 1:02:39.270 --> 1:02:41.950 If I was going to issue credit default swaps, you ought to 1:02:41.950 --> 1:02:42.660 reserve it. 1:02:42.660 --> 1:02:45.370 If it's going to be an insurance instrument, treat it 1:02:45.370 --> 1:02:47.270 like an insurance instrument. 1:02:47.270 --> 1:02:51.980 And make the underlying company, who's issuing them, 1:02:51.980 --> 1:02:53.230 put up reserves. 1:02:57.860 --> 1:03:02.300 STUDENT: It can be a bit intimidating sometimes to 1:03:02.300 --> 1:03:04.840 hear, or learn, or read about the insurance industry because 1:03:04.840 --> 1:03:07.590 of the regulation, and the billions and billions of 1:03:07.590 --> 1:03:09.340 dollars that are always involved, et 1:03:09.340 --> 1:03:11.370 cetera, as a student. 1:03:11.370 --> 1:03:13.490 But I'm wondering, in addition to what you're doing yourself 1:03:13.490 --> 1:03:19.310 now, with C.V. Starr, what opportunities do you see for 1:03:19.310 --> 1:03:21.830 entrepreneurship in the insurance 1:03:21.830 --> 1:03:24.170 industry today, if any. 1:03:24.170 --> 1:03:24.770 MAURICE ''HANK'' GREENBERG: Well, I think there's 1:03:24.770 --> 1:03:28.680 tremendous opportunity for being an entrepreneur. 1:03:28.680 --> 1:03:33.100 You know, you're living in a changing world, changing 1:03:33.100 --> 1:03:36.080 economies, new products are being invented and 1:03:36.080 --> 1:03:38.940 developed every day. 1:03:38.940 --> 1:03:41.110 And investments are going on in different 1:03:41.110 --> 1:03:42.310 parts of the world. 1:03:42.310 --> 1:03:44.440 All of that needs insurance. 1:03:44.440 --> 1:03:47.510 And so, there's great opportunity to be creative in 1:03:47.510 --> 1:03:50.950 the insurance industry, and differentiate yourself from 1:03:50.950 --> 1:03:52.440 everybody else. 1:03:52.440 --> 1:03:54.030 I'm about to do a joint venture 1:03:54.030 --> 1:03:56.490 insurance company in China. 1:03:56.490 --> 1:03:59.080 The one we're doing a joint venture with, a very 1:03:59.080 --> 1:04:01.440 traditional company. 1:04:01.440 --> 1:04:04.750 We will change that in less than a year 1:04:04.750 --> 1:04:07.810 into something different. 1:04:07.810 --> 1:04:10.450 And that's exciting to do that. 1:04:10.450 --> 1:04:11.960 So, I'm looking forward to it. 1:04:34.670 --> 1:04:36.480 STUDENT: Hi. 1:04:36.480 --> 1:04:37.370 Do you think that -- 1:04:37.370 --> 1:04:39.660 I mean, with the recent financial crisis, we've seen a 1:04:39.663 --> 1:04:42.893 lot of government intervention and interaction through the 1:04:42.890 --> 1:04:43.610 private world. 1:04:43.610 --> 1:04:46.600 And I was wondering, do you think that the government 1:04:46.595 --> 1:04:49.835 should have any role, other than just keeping things fair? 1:04:49.840 --> 1:04:52.040 Do you think they should intervene, when these 1:04:52.042 --> 1:04:53.252 companies are having big issues, like 1:04:53.247 --> 1:04:55.897 what happened to AIG? 1:04:55.900 --> 1:04:56.410 MAURICE ''HANK'' GREENBERG: Do I think 1:04:56.410 --> 1:04:57.790 government should intervene? 1:04:57.790 --> 1:05:00.630 I think that -- 1:05:00.630 --> 1:05:02.020 the least amount that's necessary. 1:05:04.970 --> 1:05:07.580 I think, if you're asking the question of ''too big to 1:05:07.580 --> 1:05:11.950 fail'', I think there are some institutions that probably 1:05:11.950 --> 1:05:15.170 would cause chaos if they failed. 1:05:15.170 --> 1:05:21.230 But I would make that very, very few and far between. 1:05:21.230 --> 1:05:27.540 What troubles me is, what happened in this recession in 1:05:27.540 --> 1:05:29.160 government intervention. 1:05:29.160 --> 1:05:31.690 They picked and chose who they wanted to save 1:05:31.690 --> 1:05:33.410 and who they didn't. 1:05:33.410 --> 1:05:35.890 It wasn't even-handed. 1:05:35.885 --> 1:05:41.705 It was done with the intent to save some and not others. 1:05:41.710 --> 1:05:43.990 The real story of what happened has not 1:05:43.990 --> 1:05:47.800 been printed yet. 1:05:47.800 --> 1:05:51.490 After all, it's very common knowledge that Paulson, who 1:05:51.485 --> 1:05:54.735 was then Treasury Secretary, was surrounded by Goldman 1:05:54.740 --> 1:05:57.500 Sachs people. 1:05:57.500 --> 1:05:58.640 I'm not making that up. 1:05:58.640 --> 1:06:02.930 That happens to be a fact. 1:06:02.930 --> 1:06:09.360 And so, how objective were they in what they were 1:06:09.360 --> 1:06:13.510 deciding to do and not to? 1:06:13.510 --> 1:06:16.140 I think that there are times government has to intervene, 1:06:16.140 --> 1:06:21.190 but I happen to believe in the private sector, in the ability 1:06:21.190 --> 1:06:24.900 of Americans to create jobs and businesses. 1:06:24.900 --> 1:06:26.410 And government should be small. 1:06:26.410 --> 1:06:29.020 Government created jobs and not the best jobs. 1:06:29.020 --> 1:06:33.000 Private sector jobs are the best jobs, in my judgment. 1:06:52.840 --> 1:06:54.080 STUDENT: Thank you. 1:06:54.080 --> 1:06:56.550 What role do you think that banks should play in the 1:06:56.550 --> 1:06:58.790 future to avoid a similar crisis? 1:06:58.785 --> 1:07:02.125 And do you think that there needs to be a different sense 1:07:02.130 --> 1:07:04.260 of what risk is? 1:07:04.260 --> 1:07:06.460 MAURICE ''HANK'' GREENBERG: What was the last part? 1:07:06.460 --> 1:07:07.800 STUDENT: What kind of role should 1:07:07.802 --> 1:07:09.802 banks play in the future? 1:07:09.800 --> 1:07:11.580 And do you think that there needs to be a different 1:07:11.584 --> 1:07:13.604 definition of what risk is? 1:07:13.600 --> 1:07:15.030 MAURICE ''HANK'' GREENBERG: Of what risk is? 1:07:15.030 --> 1:07:15.500 STUDENT: Risk. 1:07:15.500 --> 1:07:18.580 MAURICE ''HANK'' GREENBERG: Yeah, OK. 1:07:18.580 --> 1:07:20.820 When you say banks, you have to differentiate between 1:07:20.820 --> 1:07:23.670 commercial banks and investment banks. 1:07:23.670 --> 1:07:28.730 Look, I think that the Dodd-Frank bill, that has been 1:07:28.730 --> 1:07:34.180 passed, comes up with a whole new set of regulations. 1:07:34.180 --> 1:07:35.930 Let me touch on that in a minute. 1:07:35.930 --> 1:07:45.580 And will banks use their own capital to do transactions 1:07:45.580 --> 1:07:49.500 that put the whole institution at risk? 1:07:49.495 --> 1:07:52.885 It probably will not be the way it was. 1:07:52.890 --> 1:07:58.290 I think the Volcker Rule, which would limit the amount 1:07:58.290 --> 1:08:01.200 of individual transactions that might 1:08:01.200 --> 1:08:02.960 endanger the bank -- 1:08:02.960 --> 1:08:04.300 they are going to be limited. 1:08:04.300 --> 1:08:08.130 It'd have to use an off-balance sheet approach, so 1:08:08.130 --> 1:08:11.290 that that doesn't pollute the rest of the bank. 1:08:11.290 --> 1:08:15.180 Investment banks, for example, that may have done 1:08:15.180 --> 1:08:20.060 transactions, that bet against their own clients, I think 1:08:20.060 --> 1:08:21.440 should be outlawed. 1:08:21.439 --> 1:08:25.939 If an investment bank is selling me, say, invest in the 1:08:25.939 --> 1:08:31.329 XYZ CDO, and then they take a position against that, it 1:08:31.330 --> 1:08:34.210 seems to me that that's immoral. 1:08:34.210 --> 1:08:37.190 And that should not be permitted. 1:08:37.189 --> 1:08:42.789 Now, the Dodd-Frank bill was enacted, before they even had 1:08:42.790 --> 1:08:46.480 any of the response of all the investigations 1:08:46.479 --> 1:08:47.869 that were going on. 1:08:47.870 --> 1:08:51.410 It seems to me, they should have waited and hear what the 1:08:51.410 --> 1:08:54.190 investigators had come up with, before they 1:08:54.189 --> 1:08:57.109 passed a new law. 1:08:57.109 --> 1:09:03.729 Now, Congress has to provide for the financing of all these 1:09:03.729 --> 1:09:07.539 new regulators that are going to be created under the 1:09:07.540 --> 1:09:08.670 Dodd-Frank bill. 1:09:08.670 --> 1:09:11.100 And I'm not sure that's going to happen. 1:09:11.100 --> 1:09:13.850 I'm not so sure that all of them are necessary. 1:09:13.850 --> 1:09:15.700 What we need are better regulators, not more 1:09:15.700 --> 1:09:16.990 regulation. 1:09:16.990 --> 1:09:18.280 We had plenty of regulation. 1:09:18.279 --> 1:09:20.189 If they had enforced the regulations that were in 1:09:20.189 --> 1:09:23.299 existence, we would have avoided a great deal, if not 1:09:23.300 --> 1:09:24.550 all, of what took place. 1:09:40.580 --> 1:09:41.350 STUDENT: Hi. 1:09:41.350 --> 1:09:44.640 You mentioned earlier about how AIG attracted and retained 1:09:44.640 --> 1:09:47.540 the best people in the business, and that's how they 1:09:47.540 --> 1:09:50.140 grew, because of the strong culture there. 1:09:50.140 --> 1:09:53.790 But if you're starting a new company, or even entering in a 1:09:53.790 --> 1:09:56.790 management position at a current company, how do you go 1:09:56.785 --> 1:09:59.245 about building that type of culture that 1:09:59.250 --> 1:10:00.810 just fosters growth? 1:10:00.807 --> 1:10:03.187 PROFESSOR ROBERT SHILLER: How do you build the culture that 1:10:03.192 --> 1:10:05.102 you have talked about? 1:10:05.100 --> 1:10:06.460 MAURICE ''HANK'' GREENBERG: The culture starts at the top. 1:10:09.240 --> 1:10:10.620 It's got to start with the 1:10:10.620 --> 1:10:13.050 individual running the company. 1:10:13.050 --> 1:10:17.480 The same thing, as I say, in risk management. 1:10:17.480 --> 1:10:21.910 The CEO is the top risk manager in the company. 1:10:21.910 --> 1:10:23.580 You have other people involved, but 1:10:23.580 --> 1:10:24.770 you're the risk manager. 1:10:24.770 --> 1:10:26.950 You decide, how much risk you really want to take. 1:10:26.950 --> 1:10:29.410 And the same thing is true in culture. 1:10:29.410 --> 1:10:32.540 You build a culture based upon your performance, what you 1:10:32.540 --> 1:10:36.230 stand for, what you believe in, and you surround yourself 1:10:36.230 --> 1:10:38.630 with people who share those beliefs. 1:10:38.630 --> 1:10:41.610 If they don't, they'll feel out of step. 1:10:45.610 --> 1:10:46.470 PROFESSOR ROBERT SHILLER: All right. 1:10:46.465 --> 1:10:48.265 Thank you very much. 1:10:48.272 --> 1:10:50.012 [APPLAUSE]