John Hempton: “What the demise of China Media Express says about the demise of Hank Greenberg and AIG”

By John Hempton, a Sydney-based investor, recovering financial services analyst, and former Australian government official who writes at Bronte Capital

I met Hank Greenberg in late 2000. He was chatting mostly to Ajit Jain – the Berkshire Hathaway reinsurance impresario and I was a spare wheel. But Hank was I thought the most impressive person I had ever met. He name-dropped shamelessly (he had had just flown back to New York on a private jet after “chatting” with Li Peng). But he was so far ahead of me on so many issues it made me feel dumb. He even looked – at least in the brief conversation – as if he were considerably smarter than Ajit Jain – and Ajit is no intellectual slouch.

I was just out of my league…

Anyway there is a view around AIG – a view that I shared – that AIG was built in the mold of Hank and it required Hank – a certified genius and an unbelievable workaholic – to keep it all together. AIG you see had a single risk control mechanism: Hank.

In this view Elliot Spitzer by causing the demise of Hank Greenberg caused the demise of AIG – and by extension the demise of the entire financial system.

I thought that might be going a bit far – but it is hard to argue against the proposition that AIG got much more risky without Hank around.

And the stories were legion too. I know someone who was on a trading floor for AIG in Taiwan. There was a big error and it potentially exposed AIG to hundreds of millions in losses. Everyone was kept silent because if it leaked then people would front-run AIG closing their position and thus increasing their losses. People slept at their desks.

But the next morning – fresh off the private jet from New York – there was Hank. He had come to take control of the situation – and he stood behind traders as they solved the problems for minimum losses.

Hank was the man.

Now Hank is only a couple of percent the man he used to be. His multi-billion dollar holding of AIG has been reduced to its last few hundred million. His main asset is Starr Asia – a holding company for a variety of Asian investments (and some old AIG stock). It was through AIG that Hank made his investment in China Media Express (CCME).

At peak Starr’s investment in CCME was worth over $60 million. This is nothing to the Hank of old – but the new diminished Hank probably thinks that $60 million is a lot of money. It might even be a reasonable proportion of Hank’s fortune. As recently as January 2010 Starr dropped another $30 million into CCME. And by that time CCME was a controversial company.

The demise of CCME

I wrote that China Media Express was either (a) one of the best businesses in the history of capitalism or (b) one of the most brazen frauds in the history of capitalism.

Given the auditor has resigned and is suggesting fraud, the company is suspended and well – all sorts of other ugliness – we know which now. It was one of the most brazen frauds in the history of capitalism.

And we know who was the biggest victim: Hank Greenberg.

And given Hank’s much dimiished status this was not chump change. It was a meaningful hit.

If your one-man-risk-control unit can be fooled by something so obvious then why couldn’t it also be fooled by someone offering 25 bps extra carry by double-levering life insurance statutory funds into the AAA strips of subprime securitizations?

China Media Express – apart from being a really fun story – punctures the last Hank Greenberg myth – a myth that I personally believed.


PS. I think we can conclude that Ajit Jain really was the most impressive person at that table. I sure as hell wasn’t.

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  1. Tao Jonesing

    “Now Hank is only a couple of percent the man he used to be.”

    No. Hank is the man he always was, he’s just worth pennies on the dollar of what he used to be worth. How much you’re worth economically does not determine your human value. The fact that you are confused, Mr. Hempton, speaks volumes.

    “And we know who was the biggest victim: Hank Greenberg.”

    No. Hank was a name-dropping perp whose ego ultimately drove him to believe his own hype as much as you did.

    I’m sorry, Mr. Hempton, but I have no sympathy for Hank Greenberg and even less for you. You continue to judge a person’s value based on pre-collapse valuation of the Ponzi scheme that made a lot of unworthy people trillions of dollars at the expense of a lot of human beings’ lives.

    Yves, reading what this man had to say was heartbreaking, not because Hank Greenberg was a victim, but because the author is so embedded within the bankster culture that he believes Hank Greenberg, master criminal, was a victim. I really hope Mr. Hempton has a chance to take a break from the fawning culture that Wall Street foster and exemplifies. I’m not asking him to foreswear it, only to understand it for what it is.

    There’s no doubt that there are a lot of good people working at public corporations, including banks, but we need to get rid of the hero worship already, if only to correctly sort between the good guys and the bad guys.

    I really wish I could have been more complimentary about what I had to say, but I was too appalled at what I had to read.


    1. YankeeFrank


      Totally agree with you here. As a “Mad Men” fan, I recall an episode where the lead is basically forced by the necessity to generate media interest in his new firm to take credit for a very slick business move that was actually executed by a team of people all putting their diverse skills together. It was a beautiful commentary on the fraud of “the lone genius”. All successful large endeavors are team efforts. The cult of personality that demands creation of “compelling” narratives of individual prowess is so tired, and dare I say, Galtian (blech). I find teamwork so much more compelling and inspiring (think
      “Apollo 13”). But from Edison on we have demanded these myths and, frankly, they are juvenile and fantastic and they should end. There is no way one man can control the risk of a huge goliath like AIG. The narcissistic hero worship Hempton displays here is not attractive.

    2. Daniel de Paris

      “we need to get rid of the hero worship already, if only to correctly sort between the good guys and the bad guys.”

      Of course, Yves can help here to promote some level of morality. And she does along with a couple of useful blogs and TV comedy shows, both left and right-winded.

      But hell! This is effective as a twig in the path of a runaway train. Only full trials of the corporations and executive in charge of this evil will clear the path here in a proper way.

      I can see very little of this. Alas US judicial institutions are looking every day more like China ones. The parallel between the countries is alas striking. Not for the best.

      No change in three years of daily reading (French holidays excepted …). I have to say I am not reading as much as I did. Just plain losing faith.

    3. Richard Smith

      Chaps, have your irony detection meters simply overloaded and burnt out?

      Check out some of his other posts on CCME. You’ll find a fair amount of tongue in cheek – which will help you interpret the tone of this one a bit more accurately.

      1. readerOfTeaLeaves

        Not being a certified genius myself, I had feared that my irony meter was on overdrive. I was beginning to impute my misreading to the sorry facts that I have no names to drop myself, and a veritable absence of private jets to fly. There I was, starting to chortle at the cleverness of a droll post positing that the perpetrator of a massive fraud was – ironically – it’s victim.

        However does a one-man-risk-control unit fall so low?
        Clearly, so obvious a genius as Hank Greenberg could never be fooled by someone offering 25 bps extra carry by double-levering life insurance statutory funds into the AAA strips of subprime securitizations.
        And if he were fooled, well then, he’d want our sympathy. After all, it’s all about him, and look how low he’s fallen: only millions, not billions, that he’s left with… pity, really.

      2. Daniel de Paris

        I take your point. But is no matter of humour.

        First not all of your readers – especially foreigners like myself with a limited grasp of English – will catch the bait.

        Second that a matter of court of justice, lawyers and judges. Not laugh or double talk.

        Please keep any kind of “humour” out this blog. For god’s sake!

    4. nonclassical


      here here..I became aware of the shady side of “Hank” over 10 years ago as NY TIMES actually did its’ job, exposing
      criminal conduct involving “re-insurance” scam=divvying up
      end of year “un-used” “re-insurance” policy $$$..

  2. OldSkeptic

    Might also be a case of the “5 year old” syndrome.

    This is where you can have an absolute genius in a particular field (e.g. a surgeon), but outside that field they have all the ability of a five year old. Sadly often with the confidence (hubris?) of their expertise in their field.

    Very common. Often the easiest people to con.

    The amount of people that are all round geniuses and can quickly switch and master another area (e.g. Richard Feynman) is about as rare as a … Richard Feynman.

    1. ira

      > The amount of people that are all round geniuses and can quickly switch and master another area (e.g. Richard Feynman) is about as rare as a … Richard Feynman.

      Interestingly enough, I knew a molecular biologist who was a participant in some scientific meetings with Feynman (Feynman at some point became interested in molecular biology, believing that physics could help solve some of the more difficult problems), and my friend told me that Feynman’s questions were quite naive, and that he (Feynman) didn’t come off as being particularly intelligent (at least as compared with his reputation.)

      1. Dirk77

        No question is dumb if asked sincerely. All that shows is Feynman was wiling to appear naive to get the understanding he wanted. If only everyone had that quality.

        1. ira

          Actually I’m mischaracterizing what my friend told me, since it was many many years ago: I don’t believe he said that Feynman’s questions were naive (those were my words). What I do remember was that he wasn’t overly impressed with Feynman’s

          1. attempter

            I don’t know how universally brilliant Feynman was or wasn’t, but I do love Dirk’s unfalsifiable “logic”:

            If Feynman sounded naive, that can only mean he was intentionally appearing naive to elicit, Socrates-manner, better discussion.

            So it follows that once you label someone a genius, then the more stupid he sounds, the more brilliant he must really be.

            Where have I been seeing that logic a lot recently? Oh yeah, it regards some alleged geniuses on Wall Street.

            (Then there’s the similar and related Hayek/IMF etc. logic that “If any of my prescriptions are implemented and bad effects follow, that can only be because they weren’t implemented intensively enough. So failure is always a reason to double down.”)

            Like I said, I don’t know whether or not this applies to Feynman’s specific example.

          2. Nathanael

            Feynman has a reputation of being expert at learning. Asking stupid questions is part of that. Grasping things immediately was *not* part of his reputation. So this example doesn’t really contradict his reputation.

  3. paper mac

    It’s almost as though wealthy American corporate execs are mostly glib sociopaths whose fraudulent “earnings” are massively subsidized by the captured government! And here I was thinking that they were all swaggering super-geniuses with deep insight into the political economy of China!

    1. James Cole

      Why does that surprise you (that execs are sociopaths)? What personality traits are rewarded and promoted in rapacious corporate hierarchies?

  4. chris

    Greed and lust for power have no correlation with intelligence.

    Getting uber rich by being a bank exec or insurer doesn’t take tremendous brains. It just takes a criminal mind subsidized by the government and taxpayers

  5. Stephen Montgomery

    The critics of John Hempton have clearly not been lucky enough to receive the steady stream of free emails disseminated by Bronte Capital. If they had done so they would realise that John is no apologist for the excesses of American capitalism but a very diligent and imaginative fund manager who freely shares many valuable insights in to a wide variety of topics. As a regular reader of this website and John’s commentaries I salute and thank both Yves and John.

    1. Hu Flung Pu

      Seconded. It’s clear that many of the posters above are not regular readers of John’s blog.

    1. skippy

      “One word in my defense” ….what do you start with a dead cat….and is void of…irony, but filled with something else…eh.


    2. kristiina

      It was quite a surprise to see the first comments: somehow i just don’t catch their point. Trying to defend the article would seem strange – as if explaining the plot of the movie to the person sitting next to you at a movie. If they’re not getting it, what is the use?

      Just goes to show what a difficult task human communication is. A bit of well-written schadenfreude over a fallen star – why would that be heartbraking? And accusing Hempton for mixing economic worth with human value – i’m not getting where and how this happens in the article. It would all make more sense to me if the first commenter’s name was H. Greenberg, though.

    3. kingbadger

      Irony is an overused and tired rhetorical style. Maybe it’s best to keep things straight.

  6. Ray

    The day, after the money was approved for AIG Hank cashed out 1 billion, that’s with a B. I can cry, but not about his hard luck.

  7. financial matters

    reminds me of an Yves WTF moment….

    “””Wilmustad understandably wondered how they were supposed to come up with $14 billion in the next several minutes. Then it dawned on them: the unofficial vaults. The bankers ran downstairs and found a room with a lock and a cluster of cabinets containing bonds – tens of billions of dollars’ worth, dating mostly from the Greenberg era. They began rifling through the cabinets, picking through fistfuls of securities that they guessed had gone untouched for years. In an electronic age, the idea of keeping bonds on hand was a disconcerting but welcome throwback. (p. 400)


    Perhaps there is an innocent explanation for this huge stash. However, but in all my years in financial services (and having had billionaire clients who would be completely within their rights to run their enterprises as personal cookie jars to the extent the law allows), I have never heard of anything remotely this suspect. Given AIG’s history, there is every reason to believe this is what is appears to be: a slush fund created for Greenberg’s personal use that was never accounted for properly.

    The simple test of whether this arrangement is proper or not is whether the cache was fully accounted for on AIG’s balance sheet. If not, no wonder Greenberg had to go to such lengths to boost reported earnings. He would have needed to hide the truly remarkable amount of skimming needed to put these reserves aside.”””

  8. ella

    Ahhh, the rule of man(Hank) and not the rule of law (internal risk management systems enforced by strong regulation). If Hank was so smart why didn’t he implement governing rules to prevent the AIG melt down? As the credit bubble spread, people took more and more risk and made more and more money,. and who knows what Hank would have done?

  9. dearieme

    “Dear John,
    Irony is not taught in American schools.”
    But stealery is. At least in Business Schools.

  10. Michael H

    All right, so a few commenters missed the irony. When it comes to dealing with banksters, some of us prefer a more direct approach.

    King Richard III [to Buckingham] “Shall I be plain? I wish the bastards dead; And I would have it suddenly perform’d.
    What sayest thou? speak suddenly; be brief.”

  11. Hugh

    “China Media Express – apart from being a really fun story – punctures the last Hank Greenberg myth – a myth that I personally believed.”

    This sure sounds like at some level Hempton believed in Greenberg. Listen before the Ponzi collapses the Ponzi artist is gold, brilliant, THE MAN. Those who take down the Ponzi aren’t the ones who destroyed prosperity. That responsibility lies with the Ponzi artist as it should.

    Nor should we forget that AIGFP was set up by Greenberg. Sullivan pushed AIGFP hard but there is no saying that it wouldn’t have blown up under Greenberg just as much. And too we should remember that Greenberg set up AIG’s system of internal re-insurance which has likely left all of its insurance units highly exposed. Put simply Greenberg was and is a crook. It wasn’t just what Spitzer caught him at. It was much more. That an old conman gets taken by other cons, I hate to say but while poetic justice it’s hardly surprising.

  12. Patrick Donnelly

    Tao Jonesing

    Sadly, because along with the author of eConned, he was two of the eight greatest commentators: Marc Faber of Chiang Mai, safe from all tsunami, Ron Paul, Morgan Kelly, Bob Chapman, Bill Bonner, (don’t buy his real estate!) and Steve Jones (still wrong about Aussie real estate!).

    We will miss him!

  13. EricStoner

    Greenburg was no doubt a smart guy. But he was also a bully and an egomaniac. A very loud, very confident person will frequntly be attributed as a really smart guy by people who beleive that a an opinion loudly and confidently stated correlates with the opinion being correct. Actually an opinion loudly and confienetly stated correlates with an a person who is an egomanical bully, because don’t know as much as we don’t know.

    Newt Gingrich is another example.

  14. kristiina

    How interesting…

    Checked the link ( ) where the blogger dismisses Hempton’s blog entry on a Japanese bank with one sentence about Homer nodding, without any sort of argument about what Hempton says in his blog entry. The same blogger made an accusation on Hempton in the comment section of Hempton’s own blog, again without giving any argument. And now the same is presented here as evidence for Hemptons lack of something – don’t even really understand what.

    So, yes, irony is obviously difficult for some. And Hempton seems to have aquired some enemies – his immaculate groundwork concerning all sorts of shady money-making machinations may have angered someone, maybe?

    But the conversation has been a useful reminder for me that there’s nothing like a little disgreement to show what kind of people one is dealing with. Seriously, how sensible is it to demand that this (or any blog worth looking at) be a humour-free zone? Some people only want Pravda, an i sincerely wish they get exactly what they want.

    1. the grin without the cat

      kristiina said: “So, yes, irony is obviously difficult for some…Some people only want Pravda…”

      Strange. I just visited the blog referred to above by someone calling himself Fungus FitzJuggler III; occupation: gentleman

      and immediately landed on the following quote, originally from Naked Capitalism by Kevin Earick (Fungus FitzJuggler III gives due credit), excerpted below:

      “So, the legacy families assumed that all humans were replaceable, except themselves. Bad assumption. They also assumed that they had time on their side. Bad assumption.”

      “The agents assumed they could hide their looting behind non-profits indefinitely. Bad assumption. The churches assumed that indoctrinating the masses with propaganda from birth would shield their property indefinitely. Bad assumption……….”

      “….These black holes have now intersected and joined, to become the globally replicating virus, which has hit the wall. Funny, no matter where you go, you will find the masses offering each other help out of the black hole, for a fee, slavery to consumption anxiety.”

      “Simply disconnect whatever anxiety algorithm that ails you from the nexus consumption algorithm and reconnect it to your own investment algorithm. If at first you do not succeed, move to another location, get another angle, and try again, peeling off the layers of non-productive anxiety, and their associated assets, as you go.

      And Fungus Fitzgerald III comments: “No foundation, no economy. Below the old foundation, you will find the new foundation, already installed. Add recursion to quantum physics, with the three point structure, and off you go.”

      kevinearick: “I am now at the border, with my crow bar. Where are you?”

      My take: not quite sure what to make of this, but it doesn’t sound like Pravda to me.

      Meta-irony perhaps?

      “Irony is a playful way of accepting something. Mine is the irony of indifference. It is meta-irony.” – Marcel Duchamp

  15. John Hempton

    I love being criticized buy a guy whose blog post is adorned with the slogan Arbeit macht Frei.

    Apart from meaning work will make you free it was the slogan on the gates of Auschwitz and the other Nazi extermination centres.

    I mean seriously… this is the level of my critics.


    1. kabosh

      Right on John. Some of us got the humor and the irony/sarcasm of your post, and you’re right on target. Not that it took a Hank Greenberg-level genius to spot the sarcasm, btw, but humor of any kind escapes some people. And by the way, what could be sadder than people who don’t get the joke demanding that no jokes be allowed?

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