Asked if an AIG bankruptcy were possible, he said if the company doesn't get a bridge loan, new capital, or relief from rating agencies, "then there's no alternative, and that would be a disaster."

Greenberg, who has much of his own personal wealth tied up in AIG, said he has written a letter to the company offering his help, but complained that he has been rebuffed.

Watch Greenberg interview at left.

The former CEO has been at odds with the company since he left in 2005 amid charges of financial misconduct leveled by then-New York Attorney General Eliot Spitzer and the Securities and Exchange Commission. Greenberg denied wrongdoing.

Greenberg's company C.V. Starr said, in a filing with the SEC, that it is working with its adviser, investment bank Parella Weinberg Partners, on strategic options, including buing assets from AIG, taking it private, or trying to buy it in a proxy fight.

In order to take such steps, Greenberg would have to receive approval from the New York Department of Insurance, given strict laws governing those who hold more than 10 percent of an insurer's stock.

A spokesman for New York Insurance Superintendent Eric Dinallo was not immediately available for comment.

Monday's rating downgrades will make it much more difficult for AIG Chief Executive Robert Willumstad to raise cash, and could trigger demands that the company come up with nearly $20 billion.

The insurer has suffered $18 billion of losses in the last three quarters tied to guarantees it wrote on mortgage-linked derivatives. It ended June with $1.05 trillion of assets. Its failure would likely be larger than that of Lehman, which said it ended August with about $600 billion of assets.

Credit Suisse analyst Thomas Gallagher halved his price target on AIG to $3, citing a "heightened probability" of a bankruptcy filing. "While there is a chance the company can work its way through its liquidity problems if it can secure substantial bridge financing, we think this will be challenging to execute in the current onerous credit environment," he wrote.

AIG ended 2007 with 116,000 employees, more than four times as many as Lehman.

Too Big to Fail?

Late Monday, Standard & Poor's cut AIG's long-term credit rating three notches to "A-minus" from "AA-minus," citing "reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses."