Fatal Risk: A Cautionary Tale of AIG's Corporate Suicide

Many financial institutions failed when the financial crisis of 2008 hit, but perhaps none as spectacularly as insurance giant AIG.  In FATAL RISK: A Cautionary Tale of AIG’s Corporate Suicide (Wiley Hardcover; April 11, 2011; $27.95; 978-0-470-88980-0), investigative reporter Roddy Boyd writes a riveting inside account of how Maurice "Hank" Greenberg, the storied combat veteran and driven entrepreneur, took a motley collection of insurance companies and built them into the world's most innovative and daring financial conglomerate—only to see it all crash and burn.

Made rich and powerful through Greenberg's iron will and vision, AIG was unprepared for his dramatic ouster in 2005. As the company recovered from a bruising regulatory battle, its management did not understand what risks were being taken onto its once mighty balance sheet in the name of a quick buck. As the CDO and real estate markets imploded, AIG's role as the indispensable giant at the corner of Main Street and Wall Street nearly brought down the world financial system.

Fatal Risk reveals the following and more:

• How AIG evolved away from the safe and reliable cash-flows of the insurance business into the more lucrative and riskier capital markets.
• How the founding of AIG Financial Products, despite its collection of brilliant minds and mandate to invest and act independently of AIG, soon used its parent’s gilt-edged credit-rating to guarantee trades that no one else was willing to guarantee.
• How the warning signs were visible as early as 1992: when you guarantee the credit-rating of a bond or derivative decades into the future, you had better be paid a lot of money for that risk or be right all the time.  AIG got this wrong on both accounts.
• How brilliant and driven visionary CEO Hank Greenberg was run out of the company on a rail amidst concentric scandals that sapped his political capital.
• How it felt on the inside when Attorney General Eliot Spitzer investigated AIG.
• How AIGFP placed a gargantuan bet, probably the most lopsided and unhedged in the history of Wall Street, on the credit worthiness of subprime bonds.  Also, how an overlooked annex to a legal boilerplate for credit default swaps became AIG’s coffin.

Perhaps most controversially, Boyd argues that, contrary to conventional wisdom, Goldman Sachs, and the billions in collateral calls it made on AIG's Financial Products unit, was not the sole cause of the company's downfall. Drawing upon a host of sources—from Hank Greenberg to senior Goldman executives; current and former AIG leaders and board members; to legendary short-seller Jim Chanos and Federal Reserve officials—Boyd makes a compelling case that AIG's collapse was an inside job.

It took several generations of tireless work and measured risk-taking to build AIG into an AAA-rated juggernaut, but it took only a few years of profit and bonus chasing from a handful of previously unknown executives to bring the world's most important company to its knees.

A cautionary tale of corporate hubris and the enthralling story of how an insurance company became a central player in the global financial meltdown, FATAL RISK is must reading for market insiders, investors, business leaders, and anyone who's wondered what really happened in 2008.

About the Author

Roddy Boyd is an investigative reporter who has been uncovering financial market shenanigans for more than a decade. Most recently at Fortune magazine, he also worked at the New York Post’s business desk, the New York Sun and Institutional Investor News, and has written for Slate’s The Big Money.  In addition to founding the financial investigative reporting website TheFinancialInvestigator.com, he has worked on both the buy-and sell-sides of Wall Street.

Fatal Risk

By Roddy Boyd

Wiley/April, 2011

$27.95; 978-0-470-88980-0; Hardcover