Generation of Denial
There seems to be a sad pattern developing among the formerly august financial figures of the passing generation. We’ve seen Alan Greenspan and Robert Rubin twist themselves into verbal pretzels in order to deny any responsibility for the current state of the financial system. Now, Maurice “Hank” Greenberg joins the fraternity of former titans unwilling to accept that they were present at the creation of our current destruction. From today’s Wall Street Journal we have this gem:
“I don’t feel any responsibility at all” for AIG’s problems, Mr. Greenberg said in the interview. “How can I be responsible for something that occurred when I’m not there?”
Mr. Greenberg remains a major shareholder in AIG, though the value of his holdings has declined by hundreds of millions of dollars since the start of 2008. Mr. Greenberg, who also controls a company that is AIG’s largest private shareholder, played down the impact of the stock’s slide on him personally.
“Of course, I lost considerable net worth,” said Mr. Greenberg, who also heads another firm, C.V. Starr & Co. “But I’m working. My life is not materially changed.”
Nice to hear that Greenberg hasn’t been inconvenienced. And it would be comforting to accept his version of events where the only problem with AIG was the lack of his steady hand on the tiller. See, this what you get for chasing him out of office and giving the job to a back-bencher like Martin Sullivan.
But Noam Scheiber does an excellent job of explaining two facets of Greenberg’s culpability. The first is that Greenberg presided over the growth and metamorphosis of AIG-FP into the dangerous threat that it would become after he left. It was Greenberg, after all, who put the infamous Cassano in charge of the division knowing that he required exceptional oversight.
But the second line of responsibility is more indirect. Cassano went of the rails when AIG lost its triple A credit rating eventually racking up huge bets on suprime mortgages to replace the easy money he was making exploiting AIG’s ratings arbitrage. One of the reasons Cassano was able to get so far off the reservation was that AIG’s management was pre-occupied with putting out the fires created by Greenberg’s aggressive actions, the ones that led to Spitzer’s pressure for Greenberg to step down. Here’s Scheiber:
in March 2005, Greenberg resigned from AIG amid allegations of accounting improprieties. Within three weeks, AIG saw its precious triple-A credit rating downgraded. This was a body blow to AIG-FP, which relied on the rating to secure favorable terms for the contracts it signed. Many were so-called credit-default swaps (CDS)–essentially insurance for bonds that investors had purchased. The weaker its credit rating, the more AIG had to pledge in collateral to grease the deals–money it would have to fork over if the bonds suddenly depreciated. In general, the downgrade made AIG-FP less attractive to customers, who relied on the company’s credit rating as a guarantee it would pay up if the insurance were needed.
Between March, when Greenberg left AIG, and the end of 2005, Cassano’s division issued more than $40 billion in credit-default swaps (essentially insurance) for portfolios of securities backed by subprime mortgages. This was more than half of all the insurance of this type the company had on its books.
Worse, in contrast with the Greenberg era, there was now effectively a vacuum at the top of AIG. Greenberg’s successor, Martin Sullivan, was a traditional, meat-and-potatoes insurance man who “didn’t have the ability to figure out what was going on there,” says another former AIG official. And, even if he’d been able to scrutinize it, Sullivan didn’t consider AIG-FP a priority. “He saw his role as going around, meeting every state regulator in the country, and saying, ‘We intend to cooperate fully with all investigations of [the] company,’” says this person. For his part, chief financial officer Steve Bensinger found himself completely preoccupied with AIG’s accounting statements, whose revision it fell to him to oversee.
Something similar seems to have happened at Citibank where Chuck Prince was brought in to clean up Sandy Weill’s own reputational mis-steps. In retrospect, Prince and Sullivan were disastrous for their firms. But let’s remember that they were considered appropriated CEOs to deal with the specific problems left behind by the “builders” Weill and Greenberg.
Those “builders” bear more than a little responsibility for what happened next. Yes, their egos won’t allow them to admit it but that shouldn’t prevent us from measuring them by the proper yardstick. Success as a CEO is not only judged by what happens upon your watch. Success comes from vouchsafing the firm to others.
Greenspan, Rubin, Weill and Greenberg deserve great admiration for their enormous talents and vision and intelligence. But they cannot escape the judgment of history which lies not in remembering what you did but in marvelling at what you left behind.
Sources:
AIG Not My Fault, Says Greenberg; Testifies Today
by LIAM PLEVEN
Wall Street Journal; April 2, 2009
http://online.wsj.com/article/SB123863459729781065.html
Top Down
A New Theory of the AIG Catastrophe
by NOAM SCHEIBER
The New Republic; March 31, 2009
http://www.tnr.com/politics/story.html?id=c69b8e09-a5f8-4ffb-82b0-f8895570180d&p=3
April 3rd, 2009 at 12:40 am
There is no reason these people shouldn’t be penniless and in prison. Of course Greenberg doesn’t cop guilty – criminals never do.
April 3rd, 2009 at 1:59 am
Tick. Tick. Tick. BOOM!!!
http://www.bloomberg.com/apps/news?pid=20601110&sid=aylbeokVZaWo
Obama Banking Policy Signals $1 Trillion Writedowns From Loans
By Mark Pittman
April 3 (Bloomberg) –U.S. regulators may force lenders including Citigroup Inc. and Wells Fargo & Co. to sell assets and write down as much as $1 trillion in loans, twice what they’ve already recorded, based on Federal Deposit Insurance Corp. auction data compiled by Bloomberg.
Banks failing Federal Reserve evaluations of loans this month may be ordered to make sales worth as little as 32 cents on the dollar, according to FDIC data. That would be less than half of the 84 cents on the dollar the Treasury Department suggested was a possible purchase price. Some of the bank- insurance agency’s auctions brought 0.02 cent on the dollar.
April 3rd, 2009 at 2:26 am
You know, it’s interesting. Sheila Bair looks like the only Person in 44’s ensemble that, actually, remembers what it is to be Human.
‘Everybody’ is calling for Volcker to replace Geithner, it’s an Error.
http://www.huffingtonpost.com/news/obama-cabinet
if these ‘people’ really are the Best we have to offer…
Bair, should draw on her past experience: Society of Children’s Book Writers and Illustrators
and, instruct the ‘cained peep as to the Nature of their current Schema of Finance & Credit..
http://www.fdic.gov/about/learn/board/board.html
file it under: Ripley’s, but 44, in a hurry, is making 43 look as intelligent as he really is..
April 3rd, 2009 at 3:09 am
Hmm, let’s see. George W Bush, kidnapper, invader, torturer, murderer, thief, and moron. Not only is he not prosecuted, he is paid to give speeches to his nazi following.
Donald Rusmfeld, murderer, liar, genocidal architect of two invasions of sovereign nations. Also free and earning the big bucks getting his schlong and ego serviced by Fox and the DAR.
Dick “Darth” Cheney, murderer, swindler, torturer, liar, all around evil guy, and a pretty piss poor shot. Free to roam the earth sowing evil with his every step.
Alan Greenspan, Messiah of Debt, Prophet of Profligacy, and serial denier of all responsability. Still treated like royalty and getting paid to tell his tale of lies.
Hank Paulson, architect of the very system which destroyed our economy, distributor of largesses to his posse on the Street, and dedicated public servant who really only had the nation’s interest in mind (“the nation” being a code word for Goldman Sachs).
Helicopter Ben Bernanke, printer extraordinaire, purveyor of pallatives and lies, prognosticator of rosy futures and bright horizons, and someone who looks innocent but is either fundamentally corrupt or simply an idiot savant with no clue about life beyond the classroom. Still in power, still destroying the world in the name of Wall Street banks.
Greenberg deserves to be arrested, tried, waterboarded, and hung for treason. Unfortunately, it doesn’t seem he has broken any laws which says more about our system and values than Greenberg’s innocence. All the people in my list, and so many, many others, have done more harm to our country than any number of bearded mullahs with or without box cutters. Bin Laden might have knocked down the Twin Towers, but what about the myriad banksters who knocked down the rest of Lower Manhattan?
April 3rd, 2009 at 3:51 am
The scorched earth code of excellence. At the very least they are all accomplices if not with direct hands on culpability then by virtue of their philosophy. Mr. Six Sigma himself, Jack Welsh, admitted as much by saying the corporate focus on shareholder value i.e. EPS growth as the end all and do all was a big mistake.
April 3rd, 2009 at 5:47 am
Barry, that’s the thing that blows my mind.
We have come this far and lost this much money; but, yet no one has done anything wrong. If no laws have been broken then those laws are not worth the paper they are written on. Pair that with an SEC who has no interest in prosecuting any body and you will find yourself here.
I have had an image in my head all week regarding the repeal of Glass-Steagall. Wasn’t it repealed in the last Congress of the Clinton Administration? I remember the chambers were practically empty and passed on some procedure not requiring anyone to be present in order to cast their vote. So, the denial of any responsibility has been going on from the very beginning.
Reflecting back on how this seemingly (not overly at the time) important change took place, it is downright surreal what its consequences turned out to be. The deregulation of interest rates back in 1982 giving banks the means (supposedly) to compete against higher-earning Money-Market Mutual Funds occurred the same way. Since that time, rates on time deposits have gone from high single digits (which kept the cost of money at an honest rate) to a level measured in basis points.
We had better be vigilant against the unintended/unforeseen/unreported consequences from all of this stuff. God help us in the months & years from now when all this stuff morphs into something we never saw coming.
April 3rd, 2009 at 7:17 am
cttfinder Says:
April 2nd, 2009 at 7:33 pm
How’s all that cash feeling now folks?
Actually, pretty darn good. The point is not whether this is a rally in a bear market or whether it is a new bull market…but it is about reading tea leaves and market timing…
Let’s say there are some of us who were all in cash in October of 2007. That is the point missed. This is the vitally important point in equities. Don’t follow the damn thing down….
If you were in cash a year and a half ago. It is possible that your nest egg is 8 per cent higher than it was then….those who remain in equities 100 per cent of the time…yeah, you go home with the devil that brought you…..
Let us say you got out at 13000…if you have increased your investment 8 per cent in the last 18 months..(or slightly longer, depending on when you exited equities…) then your nest egg is at DOW 14040…
Not too bad..
April 3rd, 2009 at 7:22 am
As banks collect more and more in deposits, charge them an increasing fee which would disincentivize them from growing, and incentivize them to shrink.
As for “the list,” for starters, where’s Christopher Cox?
Glad to see that Bush et al have left, is it OK to “play the blame game.”
April 3rd, 2009 at 7:54 am
Marion,
I have been waiting for someone to say this about old Hank. Thank you. I believe this man has no soul. As if the man who built AIG from the ground up had nothing to do with what happened there. He’s a grade A douche bag to put it bluntly.
This does not even mention his role in all the special compensation plans for executives at AIG, of which I have first hand knowledge. the STARR/SICO pension plans as one example, or the fact that execs are still able to get 100% out of non-qualified deferred comp plans, which to my understanding, would have gone away considering the firm is basically bankrupt. But no, somehow it was all retained and quietly moved to Vanguard.
April 3rd, 2009 at 8:20 am
Expat Says: April 3rd, 2009 at 3:09 am
you’re on the right path, but, note, like Nixon, he was succeeded by one/a group who will not Prosecute.
http://www.thefreedictionary.com/succeeded
bud, that’s sharp.
http://www.thefreedictionary.com/sharp
4a., 5., 6., 7a.
April 3rd, 2009 at 8:30 am
In order to transfer some enterprise or asset in “as is” condition we need transparency. The complete lack of anything resembling this is going to make this an endless period of blame in US history. We probably moved farther from it yesterday by jiggering the mark-to-market rules. A salesman like Mr. Greenberg will go to his grave swearing he did right. The flock knows which way south or north is….so if a leader gets off course for too long they will always be replaced as the destination is generally assured. Transparency would allow us to spend this energy on a meaningful “what’s next?”
So long as our system does not support real transparency, this feels like a waste of good energy.
April 3rd, 2009 at 8:33 am
“Of course, I lost considerable net worth,” said Mr. Greenberg, who also heads another firm, C.V. Starr & Co. “But I’m working. My life is not materially changed.”
Another sound argument for a 90% income tax on the top bracket.
Bastards.
April 3rd, 2009 at 9:22 am
The true greatness of any CEO is leaving behind a solidly run company that can endure over the long term AFTER they leave the firm.
The ass covering by the “elites” continues. I don’t think it will work this time. Corporate America has been run into the ground for years now. Most of the rank and file know it. The chickens are coming home to roost.
April 3rd, 2009 at 9:24 am
Greenspan = Lando Calrissian
It’s not his fault his people didn’t fix the hyperdrive in the Falcon. It was that meddling Vader who was to blame! Although, he was the Cheif Adminsitrator of Cloud City, so he should have been in control.
April 3rd, 2009 at 9:31 am
Greenberg. Weill. Madoff.
Ponzi artists, all.
April 3rd, 2009 at 9:37 am
I am sure some laws were broken.. the problem is proving it. These bastards will all make the cost of that very expensive and time consuming by hiring the best sleaze ball lawyers tax payer money can buy.
The laws that were broken are the laws of decency, morality, ethics, common sense and trust. That is what these SOB’s do not get. They all broke the spirit of the law and for this we will all pay dearly. To them any endeavor and action that does not break a written law is fine since it was done in the name of profit maximization. I hope someone does something to materially change that pricks life.
April 3rd, 2009 at 10:59 am
@leftback: You forgot Welch, the first new age MBA Ponzi Artist. Don’t forget him. He was one of the pioneers who started at all.
April 3rd, 2009 at 11:05 am
If no laws have been broken then those laws are not worth the paper they are written on. Pair that with an SEC who has no interest in prosecuting any body and you will find yourself here.
—————-
Whatever happened to respecting the spirit of the law?
I’m 99.99999999999% sure the spirit of the law was not respected.
April 3rd, 2009 at 11:09 am
Another sound argument for a 90% income tax on the top bracket
————–
You can’t do that… then all our best and brightest would be living the life in some banara republic. No fair!
April 3rd, 2009 at 11:12 am
The spirit of the law? There is only the spirit of making money via worshiping at the alter of free market capitalism and money. Corporate America has been run into the ground by its so called “leaders”, who’ve enriched themselves above all in the process. It was far too easy for them to all jump on this gravy train. That’s why so many did the same kinds of things within their own companies. It worked out great for all of them. This was years, even decades, in the making. Only now are we seeing the rotten fruits of that “labor”. It’s time we all came to grips with that.
April 3rd, 2009 at 12:08 pm
Mannie,
IOW, the set-up was a set-up, and our “leaders” were/are Hitmen..
“It’s time we all came to grips with that.”
though, w/this: “worshipping at the alter of free market capitalism and money.” is, too True.
the ‘alter’ of …
http://www.thefreedictionary.com/alter
there has been no Free Market, no Capitalism, and, most seriously, no Money..
it’s been a Poli-Sci-Fi Fantasy, authored by Debt.
April 3rd, 2009 at 1:32 pm
Spitzer was right —
“Spitzer added that any criminal action would not be against the company but against individuals….”the goals that would have been advanced by a criminal prosecution of the corporation — punishment, restitution, general deterrence and industry reform — will be better accomplished by criminal prosecution of individuals, adoption by the company of dramatically new business procedures, installation of new leadership, a full examination of prior wrongdoing and a pledge of restitution to those harmed.” ”
(from http://news.google.com/newspapers?id=tpsNAAAAIBAJ&sjid=EnEDAAAAIBAJ&dq=greenberg%20marsh%20mclennan&pg=4926%2C4167864)
sorry for the long link — but how cool is that google news interface !
April 3rd, 2009 at 1:37 pm
(sorry, forgot to mention that that article was about greenberg’s son. but it’s a universal point i think).
April 3rd, 2009 at 2:24 pm
Sorry Boomers
The baby-boom generation has sailed us off a fucking cliff.
The most protected class of individuals this country has ever raised and they have sold out every principal of this country for fucking greed.
They take responsibility for nothing. EVER
It’s not my fault
I was just following orders
What’s the meaning of ‘is’
George W Bush
If we can survive these traitorous bastards,
it will be a miracle.
April 3rd, 2009 at 5:19 pm
«Barry, that’s the thing that blows my mind.
We have come this far and lost this much money; but, yet no one has done anything wrong.»
Well, the bad thing is not that lots of money has been “lost”, but that lots of paper capital “gains” have been made to appear for a few years. Those paper capital “gains” did not correspond to any increase in value of those assets, but rather to manipulation and delusion.
Suppose that tomorrow all USA house prices doubled, adding several trillions to the wealth of the USA. Reread the preceding phrase again — how can a mere price doubling add to the wealth of a nation?
Suppose that tomorrow all USA house prices doubled, and the day after tomorrow they halved again: how much money would have been lost in that second day?
All that is achieved by asset price changes like that is to transfer wealth from those with fewer to those with more assets, and from those who don’t monetize their capital gains to those who do.
Because if house prices were to double tomorrow, the stock and production of real goods and services purchasable would be the same as before (let me ignore feedback loops), but house owners would have a lot more purchasing power all of a sudden over that same stock and production of goods and services. In particular those who would trade their house capital gains for cash.
In the past 15 (and arguably 30) years the American economy has been essentially continuously in a deep recession, with only the F.I.R.E. sectors generating theoretical GDP growth; and even that was largely a delusion, as over the cycle those sectors have not been profitable.
How comes stock prices and house prices boomed despite that?
«If no laws have been broken then those laws are not worth the paper they are written on.»
Ah plenty of laws have been broken, but not in the gigantic “loss” of money that you bemoan, but in the even more gigantic “gains” that preceded it. Every conceivable security law and trade law and insurance law and gaming law was broken to create such huge “gains” despite a recessionary environment.
«Pair that with an SEC who has no interest in prosecuting any body and you will find yourself here.»
But the SEC etc. cannot investigate and jail a very large part of the USA ruling class, that would be akin to a coup d’etat. Winners in America are as group above the law. Sure, a few will be thrown to the wolves.
But I am still waiting to see how many of the people who evaded dozens to hundreds of millions in income taxes by using backdated options (thus reclassifying income into capital gains) go to jail; but not even those are being thrown to the wolves.
And in part because in Real American winners are widely admired, and many know that in the same situation they would have scammed and cheated as much or more.
To be a clever or bullying crook is a widely admired trait in Real America, because getting ahead is all that matters. How can the SEC persecute the very icons of Real America, its heroes of “whatever it takes” culture of winning?
Real America celebrates Mozili, ONeal, Fuld, Cayne, Skilling, Nacchio, Greenberg, all those who made immense fortunes for themselves, whatever it took.
April 3rd, 2009 at 5:23 pm
You have to give it to the human spirit. People simply refuse to believe that it is absolutely normal for those in positions of power to do EXACTLY what they did.
Therefore, the moral of the story is…humanity is a non-sustainable species.
April 3rd, 2009 at 7:08 pm
Blissex,
thanks for fleshing that out.
and, as always, thank you for thinking..
April 4th, 2009 at 7:54 am
«Because if house prices were to double tomorrow, the stock and production of real goods and services purchasable would be the same as before (let me ignore feedback loops),»
Rereading this I think that a nice deeper explanation of what I mean may be helpful, and for it I am indebted to a commenter who pointed out that at some point assets were being priced as collectibles.
The starting notion is that one can price things under several different assumptions, and two typical ones used by accountants are “going concern” (based on the expected income derived from maintaining the asset) and “liquidation” (based on selling the asset as it is).
If house or stock prices were to double tomorrow, just like that, this would signal a (greater) switch from their pricing as a going concern to one of liquidation value.
And a somewhat anomalous one because the rule is that most capital is worth a lot more as a going concern than for liquidation. The exception is collectibles: a famous painting is worth very little as a going concern, but a lot for resale.
In other words a collectible, something called “not an economic good”, derives its pricing from perception, from mere scarcity in the mind (because for a painting canvas, paint, framed have very little value as say fuel and are not at all scarce).
Therefore that pricing depends on there being a collector to pay for that perceived value, that metaphysical scarcity. And the role of collector for those massive house and stock capital gains in the past 15 years were either first time buyers or lenders, and finally the Fed.
There is of course the argument that as collectibles houses and stocks became a lot scarcer not in absolute terms, but relatively to those other collectibles, dollars or yens, and thus an overbundance of credit in dollars and yens generated a portfolio realignment away from dollar/yen collectibles, decreasing the price of dollar/yen collectibles with respect to that of houses and stocks; indeed, but that transferred some of the “collectibleness” of dollars/yens to houses and stocks (as “inflation hedges” of sort).
«but house owners would have a lot more purchasing power all of a sudden over that same stock and production of goods and services. In particular those who would trade their house capital gains for cash.»
In other words paper capital gains main effect and purpose is redistributive.
Accordingly the fights about the various Paulson/Geithner plans have been about the redistributive effect of making good the losses of exactly whom by taking the purchasing power from whomever else.
The main fight has been between the asset owners who cashed in and those who did not; but they have now both agreed to shift the cost of making the latter whole on those who own little or no assets. Losers…
April 5th, 2009 at 7:13 pm
Got to agree with all those who point to Welch as one of the starting points for all this. He spent his career being hailed as a genius for building a machine that could not survive a downturn. Then, he conveniently left just as the economic waters were clearly getting murkier (at least to any of us with a brain). Then when the obvious happened, he was quite happy to go on TV and talk about the things his successor had done wrong in managing the mess he left for him.
All of which is part of the reason I believe in tying up executive compensation in company stock, and requiring that it mostly remain there for a good long time. I’d say make them hang on to any stock/option for 7 years or so. Executives leave impacts that can last for years after they’re gone. They should not have the option of walking away and getting paid until the impact of their actions gets to play out in the long term.
-btc