Commentaries

from Rolfe Winkler:

Lunchtime Links 1-11

Shoddy tayloring (George Cooper) The author of my favorite book on the financial crisis now has a blog. His first post tears down Bernanke's recent speech absolving his/Greenspan's easy money policies for inflating housing bubble. It's a bit technical, but very good.

Venezuelan devaluation helps Chavez, for others it's unclear (Molinski/Crowe, DJN) Speaking to economist Steve Hanke last month about North Korea's devaluation, he predicted that Venezuela would be next. His thoughts today: "Venezuela is in a death spiral. There will be more bad news."

Hank Greenberg's self-serving, off-base salvo at Goldman (NakedCapitalism) Smith writes a great take-down of the Greenberg's "interview" in Saturday's WSJ.

Banks prepare for big bonuses, and public wrath (Story/Dash, NYT) The writers estimate that Goldman's pay will average $595k, and JP Morgan Chase investment bankers will average $463k.

Saint Elizabeth and the Ego Monster (Heilemann/Halperin, New York Mag) We already knew that John Edwards is among the phoniest candidates in recent memory, but this has interesting detail. Turns out Elizabeth's virtuous image was a "mirage."

All choices lousy for stadium fix (Brown, Cinci Enquirer) When will taxpayers learn that it's a losing bet to subsidize stadiums? A former professor of mine, Allen Sanderson at UofC, has argued cogently that subsidizing stadium construction is a bad investment.

Dubai's first foreclosure may open floodgates in world's worst market (Fattah, Bloomberg)

Time to junk AIG

The federal government’s $180 billion effort to prop up American International Group has worked, averting an even bigger financial catastrophe. Now it’s time for the Obama administration to oversee the dismantling of the failed insurance giant with all due speed.

A report this week from the Government Accountability Office makes clear that AIG would crumble and likely reignite financial fears around the world without the government’s massive support.

And the report says it’s “unclear” whether AIG will ever pay back the $121 billion in government assistance that’s still coursing through its balance sheet.

The GAO report should provide the administration will all the ammunition it needs to get tough with AIG. The report’s conclusions should stiffen the spine of regulators in their dealings with Robert Benmosche, AIG’s new $9 million chief executive.

The former MetLife chief executive seems to act as if he has taken over a financial company that’s simply made one or two bad decisions — not one that nearly brought the global economy to its knees.

Benmosche’s plan to take his sweet time in selling off AIG’s assets might make sense if the insurer could someday stand on its own without the government’s help.

But the GAO report raises serious doubt about whether AIG will ever be self-sufficient again, noting that “the company continues to rely heavily on the federal government as its source of liquidity and capital.”

AIG lunacy

American International Group is a $50 stock. Yeah. Sure. But that’s what the market says it is today so it must be.

Shares of AIG are soaring today in part because the insurer’s new CEO Robert  Benmosche tells a Reuters reporter that he doesn’t intend to conduct a firesale of the company’s divisions. He also says he’s been seeking guidance from former AIG CEO Hank Greenberg–the former Wall Street titan who just doesn’t know when to go away.

This is a great scoop for my Reuters colleague Adam Tanner. But come on. In my book, a CEO who jets off for a vacation to the Adriatic coast to a massive villa just days after taking over AIG doesn’t have a lot of credibility. So nice of Benmosche to take time out from his Croatian siesta to field phone calls from a reporter and reportedly wine and dine Greenberg.

At middday the stock was up nearly $11. Nearly 92 million shares have been traded already–more than four times the normal trading volume.

And it’s nearly doubled since AIG conducted a 1 for 20 reverse stock split in July. Shares have risen 71% since Benmosche took over on Aug. 10. Over the past two weeks, it’s been quite common for more than 100 million shares to change hands each day.

But does that “news” coming out of AIG really justify an nearly 30% pop in the stock on higher than normal volume? (There is some speculation of Greenberg putting together a bid to buyout AIG, but it is too ludicrous to repeat.)

What’s going on with AIG is more than just short covering, or mere speculation. It was easier to speculate in AIG when it was down in single digits–not at these levels.

Go away Hank

The Securities and Exchange Commission’s settlement with Hank Greenberg over allegations that he permitted the use of accounting tricks to manipulate earnings at American International Group comes way too late.

Oh sure, it’s great the SEC managed to squeeze $15 million out of Greenberg before agreeing to settle the more then four-year-old civil investigation. But if the SEC really had the goods on Greenberg, it should have gone after him years ago–settlement or not.

If the SEC had brought an enforcement action against the former AIG chieftain last summer, it might have saved us from watching Greenberg make frequent appearances on CNBC to  regularly boast about his skills as a risk manager. For months now, Greenberg has been going on CNBC to claim the giant insurer never would have gotten into so much trouble, if he was still running the show.

In Greenberg’s world, if it wasn’t for former New York Attorney General Eliot Spitzer driving him out of AIG in 2005, the big government bailout of the insurer never would have happened. Why? Well, according to Greenberg, he would have stopped AIG Financial Products from writing those reckless credit default swaps on tens of billions of dollars of now worthless CDOs.

And, as we all know, it was because of all those CDS contracts that the federal government had to come rushing in last September to prop-up AIG and prevent a global financial meltdown.

But here’s the hard truth that Maurice “Hank” Greenberg never liked to talk about during his seemingly endless roadshow to promote himself: he appointed Joe Cassano, the man most responsible for letting AIG Financial Products run the insurer into the ground.

Of course, Greenberg, 84, says if he had remained at the helm of AIG, he never would have permitted the kind of swaps writing that Cassano’s team was doing. And, to be fair, some of the worst CDS deals were done by AIG Financial Products in the latter part of 2005.