Gerry Canavan

the smartest kid on earth

Posts Tagged ‘AIG

Mistakes Obama Has Made

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Mistakes Obama has made: Timothy Geithner.

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November 17, 2009 at 4:02 am

‘The Man Who Crashed the World’

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‘The Man Who Crashed the World’: Michael Lewis on Joe Cassano, former head of AIG’s disastrous Financial Products Unit.

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July 10, 2009 at 7:04 pm

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No Longer Super Sweet

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Ladies and gentlemen, Toothpaste for Dinner.

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April 1, 2009 at 4:26 am

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Wednesday Links

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Wednesday links.

* Scandal at UConn! The Plank says the story is peanuts; this sort of corruption is endemic to the NCAA.

* Cover Stories From the Most-Requested Back Issues of The American Prognosticator (1853–1987).

* Duke University professor and civil rights icon John Hope Franklin has died.

* Upright Citizens Brigade parodies Wes Anderson. Bastards!

* A 93-year-old Japanese man has become the first person certified as a survivor of both U.S. atomic bombings at the end of the Second World War.

* The first unambiguous case of electronic voting machine fraud in the U.S.?

* Solitary confinement as torture.

* Roman engineers chipped an aqueduct through more than 100 kilometers of stone to connect water to cities in the ancient province of Syria. The monumental effort took more than a century, says the German researcher who discovered it. How could the Romans think in terms of centuries but we can’t think past a single business cycle?

* Lots of people are linking to this letter from an AIG bonus recipient. The merits of the contracts aside—I’ve said before they should be enforced unless fraudulent or predicated on fraud—but I don’t think he helps his case much when he puts a number on it. His one-time after-tax “bonus” is more than I would have made in thirty years of adjuncting.

* David Brin wants to “uplift” animals, i.e., make them sentient. This is exactly why people don’t take science fiction seriously; it’s totally crazy, pointless, and cruel and it wouldn’t even work…

Sunday Linkdump #2

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Sunday linkdump #2, our ruined economy edition.

* Matt Taibi has today’s must-read AIG article in Rolling Stone, “The Big Takeover.” Discussion at MeFi with more links.

* The article in this month’s Harper’s (“Infinite Debt”) is good too, but unfortunately it’s not available to non-subscribers online yet.

* Rachel Maddow on how deregulation helped get us into this mess.

* John Gray reviews Margaret Atwood’s new book on debt for The New York Review of Books.

* And Paul Krugman is very unhappy about the Geithner toxic assets plan. He’s not the only one.

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March 22, 2009 at 5:14 pm

Even More AIG Blogging

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I guess I’m doing some AIG blogging today. A few more links for people looking for background and commentary on this.

* Good background on the collapse of Wall Street and the shady and/or illegal practices that have characterized the behavior of these large firms over the last few years can be found in Michael Lewis’s piece for Vanity Fair from December.

That’s when Eisman finally got it. Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. “They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford,” Eisman says. “They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?”

Here’s an interview with Lewis.

* Eliot Spitzer, hilarious national joke though he may be, says the real scandal is “that AIG’s counterparties are getting paid back in full.”

But wait a moment, aren’t we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won’t be laid off. Why can’t Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn’t we already give Goldman a $25 billion capital infusion, and aren’t they sitting on more than $100 billion in cash? Haven’t we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn’t they have accepted a discount, and couldn’t they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed?

The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.

(Via Vu.) Spitzer also speaks about the (misdirected) “populist rage that is metastasizing very quickly,” which is a topic I just finished writing an email about. My interlocutor had a good line I’ll just go ahead and quote:

Every problem we have is met with demands for a kind of vengeful series of recriminations instead of a focus on what public policy should focus on – the institutional framework that allows/encourages people to behave in a certain way and that leads to disastrous results.

Obama needs to channel this rage into a movement for systemic reform of capitalism, not just pump capital into institutions that have been broken for not years but decades. Otherwise, he and we will find ourselves in this same place soon enough, with all same players crying “Oops!” again.

* Dan Hind has a somewhat similar take, via Lenin’s Tomb, though it must be said that both links are instructive examples of how difficult it can be to divide justice from vengeance in times like these. What I like about Hind in particular is the way he traces the crisis to what I agree is a major point of origin, the explosion of public and consumer debt beginning in the early 1970s, which didn’t “just happen” but which was, again, the result of a system of incentives instituted by those in power. The credit crisis is a symptom of a much larger disease; Obama needs to think much bigger than he seems to be.

* Dr. Bluman has some thoughts about legality and fraudulent conveyance in the comments to a post I keep pushing down the page.

Written by gerrycanavan

March 20, 2009 at 5:27 pm

More on AIG

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The company claims any failure by the government to [back all of AIG’s obligations] would have catastrophic consequences. This claim is exaggerated. Serious consideration should be given to forcing AIG’s partners in derivative transactions — which are mainly buyers of credit default swaps from the company — to take a substantial haircut.

More on AIG: “AIG Still Isn’t Too Big to Fail,” by Harvard Law’s Lucian Bebchuck. Via Josh Marshall, who provocatively writes:

These are derivatives, in many cases high-stakes bets on underlying assets the purchasers did not themselves own. So, you insure your house for fire damage. And I insure it too, even though it’s not my house. Your house burns down and you get the policy payout to rebuild your house. But I just want my money because a deal’s a deal. I have no problem with old-fashioned gambling. And if people want to play with their money this way, I’ve got no problem with that. But if the casino itself goes bust, don’t come to me and talk about having moral claim on your winnings that I need to cover.

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March 20, 2009 at 3:18 pm

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AIG: Numbers Don’t Lie:

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Let’s start off with xkcd’s lesson in how numbers lie.

As I’ve been saying both up top and in the comments the significance of this AIG bonus outrage is being badly overblown. The bonuses are a nice red-meat issue for the media circus but they’re basically a rounding error with regard to the scale of the bailout as a whole. Nate Silver is basically right here precisely because, as the cliche goes, “hard facts make bad law”—though his comparison to the Terry Schaivo case flounders at the fact that this silly thing the Congress is doing has wide popular support. (Nate and Josh Marshall both have more on the possible unintended consequences of this poorly thought-out new tax.)

As I’ve been trying to argue, the only relevant consideration regarding the bonuses is whether they were legal contracts, negotiated in the proper way and not predicated on fraudulent accounting or other illegal activity. Andrew Cuomo and Eric Holder should be investigating the bonuses, in other words, not Barney Frank. If they were legal, and their terms were met, pay them out; if they were fraudulent or predicated on fraud, arrest people.

What angers me about this situation is the widespread assumption that of course the bonuses are legal (just ill-advised), just like of course everything AIG did was legal but ill-advised. See, for instance, Ezra Klein on Madoff:

Madoff knew his investment scheme was a fraud. Wall Street should have known their investment schemes were a fraud.

Give me a break. Plenty of people on Wall Street knew their investment schemes were fraudulent. Those people are crooks, not dupes, and criminal prosecutions are the way we find out who they are.

(EDITED TO ADD: You can draw a distinction between AIG and Madoff, but it’s the distinction between two separate categories of crime, not between the guilty and the innocent.)

Repeating what I wrote in answer to Shankar’s question “Criminal Prosecution for what?” last night:

Well, that’s the job of state and federal prosecutors to determine. But there’s plenty of reason to think that (say) underwriting billions trillions of dollars in insurance obligations you know you have no capacity to pay out on is an abrogation of your fiduciary obligations — just for starters. Fraud and dishonest account methods were rampant in the banking industry, which has strict rules about this sort of thing that plainly weren’t followed. It’s not *just* stupid — in many cases it was stupid and illegal. Or so it seems to me.

…To add the obvious disclaimer, I’m not a lawyer, much less a prosecutor. But the treatment of the issue in the media tends to frustrate me on this point. Generally speaking the operative assumption seems to be “Oops, and they all got away with it” — that what they did was obviously legal, just slimy, and so we’re all just going to have to swallow our anger and move on. I don’t know that it *was* legal in all cases, and if CEOs and CFOs broke the law in chasing these bogus returns then DOJ and state AGs absolutely need to get involved. It’s a much higher priority for me than retributive taxation of contracts that are obscene (but probably legal) in an industry where the payment of obscene salaries is already (and still) an unchallenged norm. The bonuses are peanuts compared to the amount of money that’s already vanished.

Who Could Have Predicted?

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Who could have predicted that putting the people who caused the problem in charge of fixing the problem would go so wrong? Say goodnight, Timothy.

Meanwhile, the situation at AIG may be much, much worse than anyone is admitting, while Kos and Josh Marshall are making sense: the real issues remain immediate triage of the economy, long-term systemic reform, and criminal prosecution of the widespread malfeasance throughout the financial sector. The bonuses suck, but they’re really secondary. Let’s not lose focus.

Written by gerrycanavan

March 19, 2009 at 2:05 am

Going After AIG

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New York Attorney General Andrew Cuomo is apparently going after the AIG bonuses. He’s already got some details on who got paid:

The highest bonus was $6.4 million, and six other employees received more than $4 million, according to Mr. Cuomo. Fifteen other people received bonuses of more than $2 million, and 51 people received bonuses between $1 million and $2 million, Mr. Cuomo said. Eleven of those who received “retention” bonuses of $1 million or more are no longer working at A.I.G., including one who received $4.6 million, he said.

Meanwhile, Josh Marshall has been looking into various claims that failure to pay the bonuses could constitute a “default event” under the ISDA Master Agreement that would trigger AIG’s trillion-dollar liabilities immediately. Sounds as if that’s not probably not the case, though Geithner may have been fooled. (Or “fooled.”)

When are these people going to jail?

Written by gerrycanavan

March 17, 2009 at 6:30 pm

R. F. L. P. E.

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Random Friday Links, Politics Edition.

* McCain has finally stumbled on a winning message on the economy: “It’s all Obama’s fault!” Riiiiight.

* And judging from the above clip it looks like McCain’s speechwriters are still trying to find a line that doesn’t lead to a creepy smile.

* Turns out McCain doesn’t know that Fannie and Freddie are private companies, either.

* Woody Allen says it will be “a disgrace and a humiliation” for the United States if Obama loses. Too right.

* But the disgrace and humiliation is already here: American democracy has a severe legitimacy problem in the face of a decade of Republican electoral malfeasance, as Ezra Klein shows.

* Obama hits back on the truly awful infanticide smear with the toughest ad I think I’ve seen him run.

* Kevin Drum and Blaney’s Blarney take looks at our new nationally sponsored soccer team, Manchester United.

* And FiveThirtyEight.com shows that the probability of a 269-269 tie continues to increase, with most such scenarios centering on an Obama loss in New Hampshire. Come on, Omaha, don’t fail us now…

While You Were Sleeping

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While you were sleeping, capitalism apparently ended. I’ve been keenly aware of the emptiness of most free-market rhetoric, but nationalizing banks goes far beyond what I’d ever thought was in the realm of the possible. Our economy is entirely, astoundingly broken, just another gift of eight years of radical Republican misrule.

Elsewhere in the news and internets:

* The House has passed its energy bill over the objections of the Republicans, which Bush has threatened to veto. (See this post from last night for more on this.) Why the veto? Because it actually takes the Republicans up on their empty “all of the above” rhetoric. Right now this looks like some good political jujitsu from the Democrats—perhaps the first time I’ve ever had occasion to type that particular sentence.

* Harper’s has opened up its David Foster Wallace archives in memoriam.

* Someone in the club tonight is stealing my ideas.

* In a nearly exact inverse to the Citibank theft story the other day, a banker has been caught stealing $14 million dollars from the Royal Bank of Scotland, giving it to needy customers.

* Colbert’s getting his own Christmas special.

* Duke’s own Fredric Jameson has received the Holberg Prize.

* All American kids play video games: 99% of boys and 94% of girls, according to a recent study.

* Obama’s putting out a long, two-minute ad on the economy. That’s all well and good, but he should be running ads like the one Ezra proposes on Social Security night and day.

* Tantalizing news about the Chevy Volt.

* And the always amazing Big Picture blog has photographs of the aftermath of Hurricane Ike.