Comments on: How AIG died http://blogs.reuters.com/felix-salmon/2011/02/08/how-aig-died/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Christofurio http://blogs.reuters.com/felix-salmon/2011/02/08/how-aig-died/comment-page-1/#comment-23866 Wed, 09 Feb 2011 16:13:23 +0000 http://blogs.reuters.com/felix-salmon/?p=7221#comment-23866 About the book ZERO-SUM GAME. It has its moments, but the author scraps up against a pet peeve of mine. She writes at one point that Chris Lown, a banker in the ICE ‘war room’ preparing their proposal for the CBOT board, was “one of the only people who got a bit of fresh air that night,” etc.

Okay, I get it. It got out of the suite just to ferry materials to and from the Kinko’s. But the expression “one of the only” is annoying. It means either “the only person who” or it means, “one of a small number.” But it doesn’t tell you which it means. Grrrr.

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2011/02/08/how-aig-died/comment-page-1/#comment-23855 Wed, 09 Feb 2011 00:32:52 +0000 http://blogs.reuters.com/felix-salmon/?p=7221#comment-23855 @fixedincome, AIG wasn’t bailed out. Goldman and other buyers of credit swaps from AIG were bailed out. There is no reason why a mediator who is supposed to be neutral couldn’t have told both parties that they get 60 cents on the dollar (or something like that), or take their chance in bankruptcy court. Since the issue wasn’t defaults on loans, but rather a reduction in the value of collateral AIG was putting up, the government could have also said they were backing up the collateral. In that case, no money changes hands, and the panic stops, as Goldman doesn’t have to mark down the swaps they bought from AIG.

I’m ok with saying Goldman was the root of only 1/3 of the evil. I don’t hold them at fault for the crisis, only that they got way more than they should have, in fact, there should have been some pain inflicted on them for buying those swaps from AIG in the first place. I don’t even know or care if Paulson was determined to protect Goldman, all I know is they bluffed Geithner and Bernanke by basically saying the whole world will collapse if they weren’t made whole, and those two academics (who were negotiating with the best poker players in the business) folded. Goldman was willing to kill off a great customer (AIG) in exchange for short term profits – why anybody is their trading partner is beyond me. The executives at Goldman did not need to be made whole to avoid their own meltdown, and they didn’t care about the future business they wold lose from a decimated AIG, because they only cared about themselves, not the company they worked for, or the industry they worked in.

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By: fixedincome http://blogs.reuters.com/felix-salmon/2011/02/08/how-aig-died/comment-page-1/#comment-23854 Wed, 09 Feb 2011 00:07:51 +0000 http://blogs.reuters.com/felix-salmon/?p=7221#comment-23854 Can we concede that Goldman Sachs may be only the root of perhaps 1/3 or 1/2 of All Evil? This whole wistful “how different things would have been if AIG hadn’t been forced to make them whole…” thing has got to stop.

Rewind the clock, take yourselves back to the week the Lehman imploded and AIG was bailed out. Whether Paulson or anyone else was secretly and quietly determined to protect GS or not really wasn’t all that relevant at the time.

The market was in a state of absolute panic and shock. We were looking into a black hole. The bleeding had to be staunched and it had to be staunched at a single choke point.

It’s Occam’s Razor. The simplest, most logical way to do at that moment was to make sure the dominoes didn’t keep falling as a result of fear and runs. Paying everyone back in full from a gov’t backstopped AIG was MUCH simpler and easier than what would have had to occur if the X number of firms on the other side of those trades–and I’m including the downstream from the direct counterparties such as GS–would have each suddenly gone into play. The market would have turned on one after another wondering who would be undermined by its exposure to AIG haircuts.

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By: SamPenrose http://blogs.reuters.com/felix-salmon/2011/02/08/how-aig-died/comment-page-1/#comment-23848 Tue, 08 Feb 2011 22:11:19 +0000 http://blogs.reuters.com/felix-salmon/?p=7221#comment-23848 Gee, how odd that an extremely controlling uber-CEO happened to have immediately underneath him a whole bunch of hapless mediocrities! What an amazing coincidence, and what terrible luck for Greenberg, being saddled with incompetent direct reports. If only he could have done something about that.

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2011/02/08/how-aig-died/comment-page-1/#comment-23845 Tue, 08 Feb 2011 21:32:10 +0000 http://blogs.reuters.com/felix-salmon/?p=7221#comment-23845 @JohnH, I also think the outcome would have been different with Greenberg as CEO of AIG, and possible even entertaining instead of just scary.

in regards to the comment just before that, 3.5 years is a minute on a geological scale. and in politics, looking backwards.

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By: johnhhaskell http://blogs.reuters.com/felix-salmon/2011/02/08/how-aig-died/comment-page-1/#comment-23837 Tue, 08 Feb 2011 17:02:28 +0000 http://blogs.reuters.com/felix-salmon/?p=7221#comment-23837 @ KenG Greenberg has argued that had he been running the company at the time (no doubt after having fired Cassano) he would have told Goldman et al to get in line to sue him.

Who knows if Turbo Tax would have been able to browbeat him into accepting a Fed “bailout.” I would guess not.

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By: johnhhaskell http://blogs.reuters.com/felix-salmon/2011/02/08/how-aig-died/comment-page-1/#comment-23836 Tue, 08 Feb 2011 16:59:36 +0000 http://blogs.reuters.com/felix-salmon/?p=7221#comment-23836 Hank Greenberg left AIG in March 2005. AIG failed in September 2008. I’m not sure what life form – bristlecone pine? Galapagos tortoise? – considers that interval a “minute.”

Imagine Joe Cassano shouting down Hank Greenberg. yeah I didn’t think so either.

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2011/02/08/how-aig-died/comment-page-1/#comment-23833 Tue, 08 Feb 2011 16:41:08 +0000 http://blogs.reuters.com/felix-salmon/?p=7221#comment-23833 Does the book talk about what would have happened to AIG had the government not insist that AIG pay off Goldman and 4 or 5 other banks 100 cents on the dollar, with money that the government provided? The book no doubt provides a sordid tale of risking other people’s money, and the resulting crisis surely needed to be addressed proactively, but does Boy tell us why those creditors needed to be made whole (and not at some negotiated discount), even though the loans that AIG was insuring had not defaulted?

AIG might very have failed, if they weren’t first the target of a hostile takeover.

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By: lemarin http://blogs.reuters.com/felix-salmon/2011/02/08/how-aig-died/comment-page-1/#comment-23832 Tue, 08 Feb 2011 16:10:44 +0000 http://blogs.reuters.com/felix-salmon/?p=7221#comment-23832 Seriously Felix, didn’t you take your morning coffee? You should know better than to compare a company with a sovereign, without mentioning the fact that sovereign and corporate ratings are not comparable.

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By: AHooks http://blogs.reuters.com/felix-salmon/2011/02/08/how-aig-died/comment-page-1/#comment-23830 Tue, 08 Feb 2011 14:34:48 +0000 http://blogs.reuters.com/felix-salmon/?p=7221#comment-23830 *another sigh*
“[The fiscal stimulus is] a decision which should very much be made consciously and I don’t think that anybody has really done that.”
The rationale for the fiscal stimulus is well thought out. See fellow bloggers Krugman and DeLong.

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