Spitzer as AIG Culprit
When a commission probes the economic meltdown, Michael Lewis’ Vanity Fair piece “The Man Who Crashed the World” will serve as a rough draft of what went wrong at AIG and started the financial landslide.
In chronicling how the company built a tower of risk that tumbled around Wall Street’s ears, Lewis in passing reveals the role of Eliot Spitzer, then New York Attorney General, in enabling it all.
Lewis’ close questioning of “the silent, shell-shocked traders of the AIG Financial Products unit…finds that the story may have a villain, whose reign of terror over 400 employees brought the company, the US economy, and the global financial system to their knees”–Joe Cassano, a hard-charging but relatively unsophisticated former back-room operator who drove credit default swaps to perilous heights.
When he got the job in 2001, Cassano was a pale imitation of the despotic CEO Hank Greenberg, who built AIG into an insurance powerhouse over 37 years, earning a AAA credit rating for prudence to go along with his aggressive tactics.
AIG FP’s employees, Lewis writes, “suspect that the only reason Greenberg promoted Cassano was that he saw in him a pale imitation of his own tyrannical self and felt he could control him. ‘So long as Greenberg was there, it worked,’ says one trader, ‘because he watched everything Joe did.’”
But then in 2005 along came Spitzer, in his own relentless drive to build the reputation that led to his election as New York governor, to hound Greenberg out of AIG while treating Warren Buffet, whose General Re subsidiary was involved in the same questionable deals, with extreme deference.
After that, Lewis reports, “as one trader puts it, ‘the new guys running AIG had no idea.’
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4 Responses to “Spitzer as AIG Culprit”
I think blaming Spitzer for this is a little off target.
If you read the whole Vanity Fair article, you see that AIG actually stopped issuing CDS for subprime-mortgages at the end of 2005 because the executives at AIG had finally realized that they were just too risky. However it was too late. AIG had issued CDS on subprime-mortgage in 2004 and 2005 and when the bubble burst they were forced to payoff billions.
Many of the CDS on subprime-mortgages that brought down AIG were issued while Greenberg was still running AIG, and in fact AIG finally realized the subprime-mortgage market was too risky after no long after Greenberg was forced out.
So…Spitzer is to blame because he went after Greenberg, with no indication that anything Spitzer did was off base. And Spitzer, of course, is to blame for Greenberg promoting Cassano, too. Hey, I bet Spitzer drove that iceberg in front of the Titanic, too!
Spitzer is slime, attacking Greenberg and others not only because he's a poor-quality person but to exploit the base instincts of losers by appearing he was fighting the Evil Wealthy on behalf of the People. Andrew Cuomo has pathetically aped Spitzer in this way, also misusing public office, though not as effectively or as scummily.
More interestingly, though, this thread neglected (and I waited for others to remark before I did) that Vanity Fair had a long piece on Spitzer himself some time ago, which was far from flattering.
[eight pages]
http://www.vanityfair.com/politics/features/200…
It's actually good, in depth, nothing like the fluff you might expect given the name of the magazine.
That is why I've not made any disparaging remarks about Vanity Fair's recent article about Palin.
http://www.vanityfair.com/politics/features/200…
More (reality) on Spitzer
http://online.wsj.com/article/SB120519411945525…
*** NOTE ***
Team Obama didn't make Spitzer a Cabinet member or put him in another top executive post in DC.
No, Spitzer is not the nation's new “financial czar” [chuckle].