The Hollow Men of the AIG Debacle

At this very moment, throughout this great land of ours, ordinary people dwelling far away from the chaotic nonsense known as Wall Street are probably wondering how so much money could be wasted by so few people — people who, in fact, live in another country. And when the very same people appear to be rewarded for putting all of us in deep schmutz, the folks who pay all the invoices in the country have a right to ask why. And they do. How such self-described masters of the CDS universe went from Latin lovers to limp losers in one fell swoop is truly amazing.

Understandably, it is now practically impossible for American parents to make a case to their children that crime does not pay, and that they should work to earn a decent living. On the contrary, the obvious lesson from the AIG debacle is that crime really does pay, at least the sort of metaphysical crime that leads to recessions, depressions and revolutions. Anyone with a pulse, a lawyer and an MBA can now become the millionaire next door, and one day, who knows — maybe a cabinet officer. Iraq had no weapons of mass destruction, but AIG did all right, or should we call them weapons of mass confusion. Mr. Liddy says his hands were tied. Indeed they were tied, most likely around the tubular organ with which he presumably thinks.

It would be counter-productive to point a finger at the recipients of this undeserved largesse, for that would amount to accusing bank-robbers of robbing banks. Such people were just doing their job. For my part, I want to forgive them, for they knew not what they were doing. If structured securities were bought three years ago, they had to have been priced at the time. Therefore, what we now face is not a valuation crisis, but a memory crisis. In essence, the Fed is suffering from an acute and incurable case of Alzheimer’s disease. This is not hysteria, but simply an attempt to defend the interests of the much maligned American people without passion or prejudice. I believe my client has a case.

We heard from Chairman Bernanke that AIG was too big to fail, but that Lehman was not. We are supposed to believe that a bankruptcy of this monumental house of cards would have destabilized the financial system, when in fact it would have destabilized Goldman Sachs and Soc Gen, just to name two of the irresponsible children that Ben would not spank. It is true, though, that Soc Gen did need around $6 billion to make up for Jerome Kerviel’s purported fraud. With systems like that, who needs risk? Somehow, the American people swallowed this hogwash whole, perhaps because most of them would rather not smell the stinking truth before Sunday dinner. As Clint Eastwood once said “Dyin’ ain’t much of a livin’, boy!”

AIG is internationally renowned, not for the sophistication of its underwriting or risk management techniques, but rather for the ease with which it reneges on bona fide contracts. AIG’s credibility in contract violation is slightly lower than the KKK’s in human rights violation. This current episode is just one more reason why AIG should have gone bankrupt. The entire apparatus of the bankruptcy code, something that has worked for centuries in all parts of the globe, has been undermined by those wet dreams labeled “credit” default swaps. Is there another kind? ISDA rules were manipulated in plain view of everyone to allow firms like AIG to profit by playing this game with zero capital and even less oversight. Finally, in a supreme act of chutzpah, the company tells us that a motley collection of financial Clousots were “the best and the brightest.” Frankly, I’m not afraid this is false. I’m afraid this is true.

Although on an absolute scale, the amount involved (10 bps) in the bonus pool, would not make a dent in the bailout package, its symbolism is far greater and threatens to snowball into a media circus capable of derailing the President’s otherwise reasonable attempts at cleaning up this mess. Much more troubling, however, is the betrayal of the people’s will and the usurpation of power that this double-cross signifies, not to mention that none of this cash would have to be paid if AIG had been treated as any of us mortals would have been in the same situation.

In the endless days of its endless nightmare, AIG is staring into the abyss and must come face to face with its own Götterdämmerung. More than anyone else in finance, it has learned that a lie is more powerful than truth, more lasting than love, more precious than cash.

Regrettably, this is the way AIG will soon end, not with a bonus, but a whimper!


Originally published at The Spectrum and reproduced here with the author’s permission.

8 Responses to "The Hollow Men of the AIG Debacle"

  1. Anonymous   March 25, 2009 at 12:12 am

    No question, this is a criminal enterprise from start to finish. U.S. taxpayer money going right out the door to sovereign wealth and hedge funds, as well as foreign bank. They should all go bankrupt!

  2. Anonymous   March 25, 2009 at 12:56 am

    Mr Raines, Surely you know that it is much much more complicated than this rant.

    • Anonymous   March 25, 2009 at 3:02 pm

      Wall street banksters also tried to hide behind complex financial instruments they created. However, in the end it turned out they didn’t understand the risks associated with these creatures themselves, were tripped up by them and fell on their own knifes.The moral of the story is that you shouldn’t complicate simple concepts with complex trash. After all, since when is taking money from those who have an excess of it and lending it to those who have a shortage of it at a higher price (and pocketing the difference) a complex business?

    • george harter   March 27, 2009 at 5:17 pm

      WHY? You people have sucked the blood out of this country for decades and you DON’T even have the decency to be contrite! Why is a 10 page indicment necessary for looters???? In New Orleans they shot looters on sight! Ethel and Julius Rosenberg were HUNG for their treachery.George HarterNYC, USA

  3. Anonymous   March 25, 2009 at 9:37 am

    Actually, no it is not much more complicated. I understand the issues fully, and I do not find them complicated at all. Why are they “much more complicated,” and why is Mr. Raines’ article a “rant”? Perhaps you do not understand the issues, and, therefore, you find them too complicated.

  4. paul94611   March 25, 2009 at 7:25 pm

    Actually, AIG became the conduit to finance nearly every publicly traded major financial firms bonus pool that has or will be paid out between October 2008 to the present. The whole systemic risk issue is the fear on Wall Street, The City, Charlotte, Paris and Berlin was the realization that these folks might have to actually work for their salary only. That was a worldwide crisis that demanded the immediate intervention by the federal reserve.It could be said that these actions were undertaken when our nation is at war.There are some very clear definitions for these sorts of activities that cause such harm to a nation engaged in a war for survival. I can only suspect that the folks in leadership positions at these institutions were the best able to ascertain what was happening and to take immediate action to limit the damage. Too bad for the common clave the principle of private gain, socialized loss got in the way…..A fire fighter will remove either the combustible, the O2 or the ignition source to put out a fire. Asking the same sort of prompt action from the folks that insisted they knew best how to regulate their industries and trading operations has proved to be an impossible quest. Rather, these same folks will do whatever it takes to hold a pistol at the collective heads of the citizenry and say “Do what we tell you or we will destroy you”. now THAT”S patriotism, personal responsibility and loyalty to ones neighbors and nation!Lead by example!

    • george harter   March 27, 2009 at 5:40 pm

      Man, you are right ON. Treason is treason. Destroying the US economy is not a simple felony. Maybe “Enemy Financiers” should be a category for these “people”. Ethel and Julius Rosenberg thought they were doing the “”Right Thing”. They got hung for the potential damage they did selling US atomic secrets to Stalin.But, I have to say, the Rosenbergs had Political Motivations. This crew are simply spineless, greedy, arrogant whiners who refuse to face up to what they have done. Why not waterboard some of these people?? They are not only enemies, they are traitors to the country. Treason has a price. Tears from Bullys when they are down is typical behaviour.Sir, I will have to steal your line about “tubular organs” please don’t press charges. From Latin Lovers to Limp losers, that’s priceless too. I had to personally deal with M&A super jocks, the most obnoxious sub-species of the time(thankfully they will be soon extinct) so Super Macho I wondered if many of them were not actually MetroSexual. They always used to sign documents with a very Manly flourish, and type VERY LOUDLY too!!I am now hoping the FASB commits suicide, and all asset values become fantasy. If you couldn’t believe(trust) numbers from last week-BE PREPARED!!Sad, but I know little people are meaningless in all this, chickens for the axe, but I am now finding humor in the criminality which actually still seems to be on the rise(Thank You FASB-who are you kidding, that rule will KILL securities markets!). ALL US CHUMPS CAN DO IS SEE IT COMING AND LAUGH LIKE HELL! Then move to a Fresno Hooverville.

  5. Miss Brazil   March 26, 2009 at 8:00 am

    What would you do if you were the government? You imply that you would let AIG fail in September. Would you really? If we are all the hollow men what is left for all of us?