Ok, so someone on slashdot linked to this Rolling Stones article on AIGa couple of days ago and while the tone is somewhat juvenile, I have a sinking feeling that the bulk of it is as close to the truth as is possible while still being understandable by us laypeople looking at this clusterfuck from the outside.
Now I have no clue as to the reputability of RS magazine am hoping that I am wrong. I hope that someone will post here and assure me that the article is just an inflammatory piece that grossly exaggerates what happened and that I shouldn’t feel as angry as I do, even after waiting a couple of days before posting this.
Otherwise, I’d like to ask: is there really a feasible way to regulate the companies engaging in such reckless behaviour? Or do we just have to sit and hope that next time, it’ll be different? That next time, people at the top will do the right thing?
Part of me wants to believe it’s possible but another, more cynical part believes that those people are simply too smart and greedy to be stopped, no matter how many rules are written trying to corral them.
For all the disgusting posturing and transparently artificial outrage in Washington over the 165M in bonuses, it seems to me that this is just the proverbial lightning rod being used as a diversion from the truly staggering sums of money legally embezzled by a bunch of now wealthy and prosperous people, that the honest or stupid among us will have to make up for OR ELSE!
And yes, I do believe in the OR ELSE part, unlike some of the anti-bailout people. I do believe that spending too little will result in a global catastrophe and I fear the voices that clamor for a “halt to spending and waste”.
Am I wrong in thinking this? I hardly know what to think of this mess anymore.
Personally I think the article does a better job of making an argument for jail time than it does for regulation.
People got away with this because they thought that the government would bail them out if everything went to shit. And thing is that we will -always- have to bail them out because the economy depends on it. So the only -real- fallback is prison sentences.
If you’re knowingly selling poor investments as AAA, that’s theft. It’s a crime with or without regulation. And that’s something that will make people fear playing around, which is what you really want to stop. You can make regulations for everything from Sunday to Saturday, and you’ll still have gaps that someone is eventually going to find. So you’re best to make them not have the incentive to do so.
They gamed the whole system for self enrichment. It was not a business model . It was a looting model. They are looters and thieves and are due the respect of crack whore with AIDS. They brought the system down and we are supposed to show respect to them. I feel none. Why should we beleve anything they say?
I haven’t read the article yet, but I’ve been reading Rolling Stone for 4+ years now. I gotta add that Matt Taibbi, while always intriguing, tends to fall way far to the left of Olberman, Stewart or any other typical left-wing talk show host. He has a tongue for grandiose, over-the-top, apocalyptic reporting. (If you need any example, read any of his articles from the Bush Era.)
I consider myself a tad left of the middle ground myself, but his articles typically carry the left-wing equivalent of Rush Limbaugh himself.
It’s actually a pretty good overview. A little sensationalistic and some hyperbole, but not much.
Remember the original Hanky Panky Paulson plan was to create a bad bank, and that the TARP funds would be used to buy the bad debts at “fair value.” Everyone came back and called bullshit on that (correctly too). Then Paulson was able to engineer bailing out AIG FP, who just turned around as a middle man and gave 100 cents on the dollar back to Goldman Sachs and the rest of the ibanks. Talk about moral hazard.
It would be common practice in the finance industry to work out a percentage payback. Hell, even 95 cents on the dollar would have created a bit of pain, reduced moral hazard and inserted a little bit of sanity into the whole mess.
But Paulsen and the rest of the thieves were able to get Uncle Sugar to bail out 100% of something that the industry practice never would have done. And they want bonuses with that too of course.
(I spent 7 years, mainly in equity derivatives, at UBS, Lehmans and Nikko Securities. I left the biz after the 1997 Asia crisis.)
I stick with my analogy I gave in the pit. It is like after the 21st amendment passed legalizing alcohol again and the government put the mafia in charge of the booze industry. They were the only ones actually involved in the business at that time. Who else came in as qualified and ready to go than them? The fact that they acted unethically and recklessly no longer matters. We must have their expertise.
That is a complete and total crock. Structured products is not that difficult. Hell, even I used to do it, and I’m not a quant nor overly brilliant (although some of the people I worked with were scary smart). I’ve said this in other threads, any one that does structured products work spends every day either reverse engineering other companies products to figure out how much margin they were able to rip of customers for, or dreaming up some convoluted product that could hide margin yet still find a customer willing to buy it. These things all have term sheets that explain their composition (although most investors and regulators don’t bother to read the damn things). It would be childs play to drop in a small team of good structured products people and they would be up to speed on AIG FP in a week.
AIG FP were hardly the sharpest knives in the drawer. It’s a Wall Street fallicy repeated ad nauseum trying to justify the whole bonus culture. With little exaggeration, I could take those bonuses and recruit a lot better and more experienced crew, and take over the trading book/risk in a matter of days. And if I could do it, one of the senior goldman, UBS, Barcap or MS guys could do it faster.
That is a crock. These guys were reputed to be the best and the brightest. They got away with it because the whole company got rich off their bogus banking. Anyone would know damn well that a 30 or 40 to 1 margin was risky. But they gamed the system. They had the rating agencies and regulators in their pockets. They had Gramm and the other true believers pushing legislation which relied on the bankers being honorable people. How did that work out?
Speaking from the conservative wing of the extreme left, I hasten to remind that however outlandish our positions may appear, we are frequently right. Clinging to a position midway between totally wrong and mostly right means you are mostly wrong. Not that you might be chastened, but warned.
In fact, I’m not sure the “best” people should be in charge of these things. If financial institutions were run by people who were less ambitions, less aggressive, less confident - in other words, by accountants instead of cowboys - would the U.S. economy be in worse shape, or better? I’m betting on the latter. People who handle other people’s money should be gray little men with no imagination.
Is that article accurate? You bet it is. Are you worried that the author is twisting the facts because of left-wing bias? Well here’s an article from Pat Buchanan’s magazine The American Conservative that covers the same ground more succinctly and without the profanity. This is not an issue that pits left against right, but rather one that pits those who acknowledge the truth against those in denial.
However, these articles cover only a portion of the problem. People are saying that this crisis is caused by incorrect bond ratings, or lack of regulation, or artificially low interest rates, or short-sighted financial planning, or moral hazard, or campaign finance laws, or fifty other things. But none of those things are the cause of the problem. The cause of the problem is that our business and political elites are morally corrupt from top to bottom. They are completely morally corrupt. They are greedy, selfish, narcissistic, and arrogant. They believe that it’s perfectly acceptable to steal, lie, defraud, take bribes, give bribes, change laws for personal reasons, and ruin the lives of others in pursuit of wealth. They’ve followed Milton Friedman’s ideological belief that self interest should come before all else. That is the cause of our current economic crisis.
Everyone who proposes tighter regulation, or bailouts, or bank nationalization, or stimulus packages, or whatever other financial solutions, is ignoring the true problem. Those measures address the symptoms, not the underlying disease. The true cure is that wealthy and powerful people in our society must stop believing that greed is a moral good, and start believing that they have a moral responsibility to love and help their fellow human beings. Until that happens, our problems cannot be solved.
OK Karl :dubious:. Did it ever occur to you that the people at AIG were not trying to destroy the company?
Greed is neither good nor bad. It is however, a driving force behind achievement. Without greed, you would not be sharing your thoughts around the world on an easily affordable communication device.
I think the people who invented the internet - and the auto industry, and Hollywood, and the railroad networks, and any other great endeavor - were driven less by greed (although that was certainly there) than by a desire to *create *something; the need to shape the universe in their own image.
As long as they were making huge salaries and bonuses ,they did not much care about the health of the company. They made enough to set themselves up for life, unless the dollar loses its value. …Or they invested with Madoff, which somehow would feel right.
Every industry you listed was built by men driven by the desire to aquire more. They pay most of the taxes so more money to them.
AIG was an insurance giant before it got into CDS activity which should have fallen under basic regulating practices. They underfunded the risk and oversold it to an industry that then used it as an instrument to back up riskier loans. It was a match made in hell. The government then threw bad HUD loans on the heap and lit the fire with improper oversight. This tidal wave of bad debt was made exponentially worse by a housing bubble that was easily predictable. You can’t have real estate appreciate at 3 times the rate of inflation forever. At some point it will collapse back to affordable levels. Surprise.
AIG has already paid heavy fines (1.65B in 2006, 1.26M in 2008, 1.6M in 2006) and will continue to do so. I hope they legally shank every person who deliberately conspired to falsify stated value or risk. That goes beyond greed, that’s fraud.