The AIG-FP Debacle

Michael Lewis writes in Vanity Fair about the AIG Financial Products meltdown.  He describes a failure of personalities rather than corrupt behavior:

Even more oddly, the public explanation of A.I.G.’s failure focused on the credit-default swaps sold by traders at A.I.G. F.P., when A.I.G.’s problems were clearly broader. There was the mortgage-insurance unit in North Carolina, United Guaranty, that had taken on all sorts of silly risks in the past two years, lost several billion dollars, and replaced their C.E.O. There were the fund managers at A.I.G., the parent company, who had blown nearly $50 billion on trades in subprime mortgages—that is, they had lost more than A.I.G. F.P., whose losses stood around $45 billion. And there was a pattern: all of this stuff had happened since 2005, after an accounting scandal forced C.E.O. Maurice “Hank” Greenberg to resign. Greenberg, who had headed A.I.G. since 1968, was a bullying, omnipotent ruler—one of those bosses who did not so much build a company as tailor it to his character and render it incapable of being run by anyone else. After he was forced out, Greenberg said, “The new management wanted to prove that they could continue to grow without former management” and so turned a blind eye to all sorts of risks.

As to Joe Cassano, the man who "blew up the world":

And yet the A.I.G. F.P. traders left behind, much as they despise him personally, refuse to believe Cassano was engaged in any kind of fraud. The problem is that they knew him. And they believe that his crime was not mere legal fraudulence but the deeper kind: a need for subservience in others and an unwillingness to acknowledge his own weaknesses. “When he said that he could not envision losses, that we wouldn’t lose a dime, I am positive that he believed that,” says one of the traders. The problem with Joe Cassano wasn’t that he knew he was wrong. It was that it was too important to him that he be right. More than anything, Joe Cassano wanted to be one of Wall Street’s big shots. He wound up being its perfect customer.

It begins with believing.

The most jarring false note in the piece is in this psychoanalysis of of Cassano (my emphasis):

But even here the story’s messier than its broad outlines. For a start, the guy who had the most invested in A.I.G. F.P. was Joe Cassano. Cassano had been paid $38 million in 2007, but left $36.75 million of that inside the firm. His financial interest in A.I.G. F.P. struck those who worked for him as secondary to his psychological investment: the firm was, by all accounts, Cassano’s sole source of self-worth, its success his lone status symbol. He wore crappy clothes, drove a crappy car, and spent all of his time at the office. He had made huge piles of money ($280 million!), but so far as anyone could tell he didn’t spend any of it. “Joe wasn’t a trader and now he wasn’t a risktaker, in his personal life,” says one of the traders. “With the money he didn’t have in the company he bought Treasury bonds.” He had no children, no obvious social ambition; his status concerns seemed limited to his place in the global financial order. He entertained a notion of himself as the street-smart guy who had triumphed over his social betters—which of course implied that he wasn’t quite sure that he had. “Joe had Goldman envy,” one trader tells me—which was strange, as Cassano’s brother and sister both worked for Goldman Sachs. “His whole life was F.P.,” another trader says. “Without F.P. he had nothing.” That was another reason, in addition to fear, that the highly educated, highly intelligent people who worked for Joe Cassano were slow to question whatever he was doing: he was the last person, they assumed, who would blow the place up.

We are all eating beans and gruel because of sibling rivalry run amuck - good to know.

Comments

[hrtshpdbox]

"He wore crappy clothes, drove a crappy car..."
This reminded me of Philip Seymour Hoffman's role in the movie "Owning Mahowny"; he plays a (poorly clothed, clunker-driving) bank manager who steals from the bank to fund his gambling excursions.

[Rick Ballard]

"which was strange, as Cassano’s brother and sister both worked for Goldman Sachs"

Gotta roll that around a little - mebbe eight or ten times - in order to get the full flavor. The guy who blew up AIG had siblings working for GS, which was paid how much for the AIG blowup?

Yeah - let's focus on sibling rivalry rather than collusion. Let's not think of manipulation and world class front running by Ogabe's biggest Friends of Fascism.

"Whores" is actually much too kind.

[matt]

I believe this is a part of the failure of leadership at the top in politics, business, many religions, education, and most other sectors of life today. We have a culture of greed and graft at the very top, and venality has spread through the system.

Our global society has seen entitlement, amorality,laziness, sophistry, and materialism blended into a toxic distillate that is drunk daily by the masses.

[Mike Myers]

And just who forced Hank "Ace" Greenberg out? Those of us with memories know the answer---Eliot Spitzer in one of his grandstanding semi-thuggish excursions as Attorney General

Aside from screwing $3,000 a night purveyors of commercial affection, Ol' Eliot screwed lots of investors and the economy.

[Ignatz]

--He wore crappy clothes, drove a crappy car, and spent all of his time at the office.--

So did Sam Walton and Dave Thomas. That makes a person crazy or incompetent?

[hrtshpdbox]

So did Sam Walton and Dave Thomas.
Sam owned some very nice neckties.

[Ranger]

On a side note to the result of all this, a story linked at instapundit today:

http://business.theatlantic.com/2009/07/why_unemployment_could_hit_14.php>Why Unemployment Could Hit 14%

[Strawman Cometh]

Mark Steyn in for Rush today, streamer (Raleigh) lun

[hit and run]

There was the mortgage-insurance unit in North Carolina, United Guaranty, that had taken on all sorts of silly risks in the past two years, lost several billion dollars, and replaced their C.E.O.

Yeah, UG is here in Greensboro. I don't know the CEO, but I am neighbors with a VP. I can't speak at all to anything the company has or has not done -- but this guy is world-class salt of the earth. In fact, the lake house we're at now with other neighbors, we also came to last year -- and he and his family came as well. Ask him about the injury from jumping off the high dock. Yike, as TM would say.

[JM Hanes]

TM:

"We are all eating beans and gruel because of sibling rivalry run amuck - good to know."

Rings a bell, doesn't it? GWB's pathological need to outshine Dad yada, yada. It's MoDo in a business suit instead of pink sweaters.

[joycekane]

May every Jack has his Jill.
There is a hot place ---Blackwhiteconnect.com ---Best interracial dating site in the world! It's where diversely ethnic singles meet new friends, make great dates, and build lasting interracial relationships. No matter you are looking for a NSA or serious relationship, you'll have check it out.

[hit and run]

Sorry, but I've been brooding about the missed punch-line since I failed to deliver it this afternoon...

the mortgage-insurance unit in North Carolina, United Guaranty, that had taken on all sorts of silly risks in the past two years,

Me:

but I am neighbors with a VP. I can't speak at all to anything the company has or has not done -- but this guy is world-class salt of the earth. In fact, the lake house we're at now with other neighbors, we also came to last year -- and he and his family came as well. Ask him about the injury from jumping off the high dock. Yike, as TM would say.

::drum roll please::

Talk about silly risks!

ba da bump!

Oh and, I was wrong, it was two years ago that he and I shared this lake house...and I made the http://justoneminute.typepad.com/main/2007/08/have-a-great-we/comments/page/10/#comment-6a00d83451b2aa69e200e54eebec0e8834>very well considered high risk manuever, forehead be damned.

Frickin frackin, that link to an old JOM comment ain't seems ta be workin'. You can scroll to find it, it's there, but it's not worth the effort. ::sigh::

g'night

[Mark from Houston]

Hmmmmmm ! I never made the connection between NSA and interracial dating !
......... Cleanup on aisle 11

[They're gonna blame Bush, of course, while emulating him.]

Riptide vortices in the latest crosscurrents about the CIA. With Congressional Democrats about to unleash a scandal of illicit secrecy, Obama's administration threatens to veto legislation increasing the accountability of the CIA to Congress. What's it all about, Alfie?