AIG’s Maurice Greenberg proves why we can’t let “too big to fail” happen again

Oh lord, this just kind of makes you bleed out your ears, doesn’t it?

Maurice R. Greenberg, who built the American International Group into an insurance behemoth with an impenetrable maze of on- and offshore companies, is at it again.

Even as he has been lambasting the government for its handling of A.I.G. after its near collapse, Mr. Greenberg has been quietly building up a family of insurance companies that could compete with A.I.G. To fill the ranks of his venture, C.V. Starr & Company, he has been hiring some people he once employed.

Now, Mr. Greenberg may have received some unintended assistance from the United States Treasury. Just last week, the Treasury severely limited pay at A.I.G. and other companies that were bailed out by taxpayers. That may hasten the exodus of A.I.G.’s talent, sending more refugees into Mr. Greenberg’s arms, since C. V. Starr is free to pay whatever it wants.

While America generally loves stories of entrepreneurs making a comeback, Mr. Greenberg’s success may be at the expense of taxpayers. People who work in the industry say that if he is already luring A.I.G.’s people, he may soon be siphoning off its business and, therefore, its means to repay its debt to the government.

Just to sum up: Greenberg built a company whose financial practices helped steer the American economy nearly off a cliff. In order to prevent that nightmare scenario, the U.S. government stepped in to save that business — and along the way instituted some reasonable rules for executive compensation because, well, nobody should get rich on the taxpayer dime, right? Well, those rules could drive that company’s execs into the arms of Greenberg and his new business, making it harder for the old company to get back on its feet … and leaving the taxpayers stuck.

Infuriating, isn’t it?

It’s possible that there will be a temptation in Congress and the White House to play whack-a-mole of sorts with this process, making it harder in some fashion for Greenburg and his associates to thrive in their new venture without paying some penalty. That shouldn’t happen: The horse is out of the barn.

Instead, let’s try to prevent a repeat of this whole scenario.

Barney Frank this week is introducing legislation designed to ensure that financial services companies can’t get so big that their potential failure demands a government bailout. I’m not enough of an economist to know if his proposed rules make sense; but the big picture concept is a no-brainer. Does it involve intervening in the markets? Absolutely. But the market can’t expect to have the government — and the taxpayers — ride to the rescue and emerge unscathed.