I sat down with former AIG (NYSE: AIG) chairman and CEO Hank Greenberg this week. We talked about everything from AIG's early days, its growth, to its downfall and bailout in 2008.

Below is one of the most interesting clips from the talk. I asked Mr. Greenberg a simple question: When did AIG go off track?

Here's what he had to say (transcript follows):

Morgan Housel: When did AIG go off track, from being a first-class global organization to where it found itself in 2008?

Hank Greenberg: I don't think AIG went off track. We had an Attorney General in New York, now a disgraced Attorney General ...

Morgan Housel: There's actually a quote in your book. I'm going to quote it here. It says, "Eliot Spitzer, an elected public prosecutor in New York, sparked the process that would drive AIG to near destruction."

Hank Greenberg: That's correct.

Morgan Housel: When people think about AIG's downfall, they think of derivatives and leverage and liquidity. They often don't think about Eliot Spitzer. What was his role?

Hank Greenberg: Very simple. I was on a conference call with analysts, and one of them asked me, "What's the regulatory environment like today?" This is after Enron and Sarbanes-Oxley.

There was a change in the atmosphere. Boards of directors became less supportive of companies and their management. They were more concerned about their own liability after Enron. When I was asked this question, I said, "A foot fault is like a murder charge today," which was a way of trying to dramatize the change that had taken place.

If you read the book, you'll see there's an affidavit by a man called Vacco, who had been the prior Attorney General of New York, and he happened to be in Spitzer's office when one of Spitzer's deputies came in and said, "Did you hear what Greenberg just said on an analyst call?"

He said no. He repeated that I said a foot fault is like a murder charge. Spitzer then said, in front of this prior Attorney General, "I'm going to take Greenberg down." He used some other language which was just a disgrace for him to be saying that. It's in the book.

He used that. He was running for governor. He wanted to take down big names, and he went on a campaign to do that.

He focused on a transaction we did with Warren Buffett's company, General Re, which was our largest reinsurance partner. It was five years old, it had no effect on shareholders' equity or earnings per share -- nothing to do with that. It was a peanut transaction, and he tried to make that into a murder charge, and was successful. The board just gave up supporting the CEO.

Now, I was going to step down as the CEO in May. This was in March of 2005. I was going to step down as CEO, stay as chairman to make sure the transition to a new leadership team would go smoothly, but I stepped down from the whole thing. Spitzer forced me out as CEO and I decided not to stay as chairman.

What happened after that?

The new CEO abandoned all of the risk management controls that we had -- literally abandoned them -- and discontinued the staff meetings that we had on a Monday morning, that brought everyone, the key people, together. We knew exactly what was happening on a daily basis.

They lost control. If you read the book, which you did, there is a statement from the auditors who went to the then-Acting Chairman Bob Willumstad, and said, "The current management can't run the company." They did nothing about it.