Where to Put Blame

It is funny to watch the US Congress go into a tizzy to close the barn door after the horse has fled. What makes it even more ludicrous is that Congress is -- to push the analogy -- beating a dead horse to punish the crime.

Here is the key bit from a Daniel Gross blog entry on Slate:

The failure of leadership at AIG was immense and catastrophic. But Liddy wasn't leading AIG when it blew up. He didn't get paid to make the disastrous trades, or to oversee the disastrous traders, or to oversee the people who oversaw the disastrous traders, or even to oversee the people who oversaw the people who oversaw the disastrous traders. It wasn't his idea for AIG Financial Products to insure billions of dollars in mortgage bonds, or to engage in "regulatory capital trades" or "balance-sheet rental"—insuring assets of European banks to allow them to move assets off their balance sheets. Liddy noted that at its height, AIG had between $350 billion and $370 billion of "balance sheet rental" insurance in force. (The figure is down to a mere $230 billion.)

The relevant story behind AIG isn't the bonuses. It is how a single unit of a huge company managed to threaten to blow up the entire financial system, and how the bailout is keeping all sorts of large financial institutions afloat. But Liddy isn't the person to ask about that. I'd like to hear from Maurice "Hank" Greenberg, who built AIG into an international empire and claims the whole thing fell apart after he left. I'd like to hear from Martin Sullivan, CEO from 2005 until June 2008, who got a $47 million severance package, and who, in congressional testimony, blamed AIG's demise on mark-to-market accounting. I'd really like to hear from the many savvy worthies who were on the board of directors: people like Martin Feldstein, the Harvard economist and father of Reaganomics, who has served on the board since 1987 and has collected millions of dollars in fees (the proxy shows that in 2007 alone he received $236,635), and diplomat Richard Holbrooke (2007 fees: $232,865), and Michael Sutton, a former chief accountant of the Securities and Exchange Commission. Did any of them ever raise any questions as to what AIG was doing and the risks it was assuming? And if not, what were they getting paid for?

Congress should have subpoenaed Joseph Cassano, who hauled down a few hundred million dollars while running AIG Financial Products and was the executive with the most direct responsibility (and likely the most legal liability) for the debacle. Or the economist who concocted the models upon which AIG-FP relied. And, for old time's sake, why not recall Alan Greenspan, who assured the public that credit-default swaps and shadow banks like AIG didn't need to be regulated.

There is even more, and more details, and links in the blog. Go read it. It is so depressing it is funny. (Kind of like Obama chuckling during his 60 Minutes interview when talking about the auto industry catastrophe. The US media wants to beat him up over this, but I'm behind Obama. When things get this insane, you have to keep your sanity by keeping your humour. Obama shows an ability to deal with catastrophe without becoming swamped and depressed. The media wants to beat him up over this, but this is a sign of his strength of character and his competence for the job. It should be praised and not attacked by the media.)