AIG "overseers" this morning stated that the failure of AIG was NOT a result of the Credit Default Swaps (gambling) that they participated in, and was NOT a result of the Securities Lendings (more gambling) that they participated in. No, neither of these caused the downfall. According to them, the downfall was caused because of requirements that they actually have enough "liquidity" to cover their bets. If nobody had actually, truly, expected them to have enough money to cover the bets, they'd still be solvent today.

Well, there you go - if we had only let the smoke and mirrors run happily along, the disaster could have been avoided.

Give me a break.

Pay no attention to that man behind the curtain

The mob is convinced that the best way to run a company is to berate, bully, and belittle its management. That's okay...once the mob has driven its company into the ground, it can fling the blame every which way but on itself.

As to the proximate issue..it's all a matter of chickens and eggs. The fact of AIG's downgrading from AAA, and the resultant demand for additional liquidity actually WAS a critical factor in their travails. That doesn't necessarily excuse anyone, rationalize anything AIG's done, nor does it mean they shouldn't been downgraded and called upon to further collaterize.

Nevertheless..if we're to run our company profitably, we need to do so from a point of reason, not one of feelings and anger. Calling out AIG's CEO...who was actually brought on board AFTER their collapse, as a liar or dissembler, when he's simply speaking the truth, is foolish...no matter how good it may feel.

Let's get real here - Although we don't expect Repub's to actually apply LOGIC to anything.

The man behind the curtain? Obama? You are kidding right? He hasn't completed 100 days yet Paulson and Bush started the rush to throw money at AIG last year. Can you remember back THAT far??

No doubt that Obama and Geithner should have nipped this in the bud before it blew up but the REALITY of this is that AIG will be penalized and forced to pay this amount back to the US taxpayers. If this was the Bush admin, they would say their hands are tied and and wait until the furor dies down until their next scandal distracted from the previous!

FormerlyKnownAsIRP:

Pay no attention to that man behind the curtain

I do agree that there is a chicken and egg element. That said, if I default on my mortgage or don't pay my credit cards, my credit rating goes down and it becomes harder for me to get a loan. It is certainly a downward spiral. That said, at some point, someone else might be called in to make decisions.

I am not so much pointing to the current "overseer" as I am to the deadwood of the good old days that remain. Management shake-ups can be good. In this case, I think that a "reasoned" management shake-up motivated by public anger makes sense.

BTW, in this case, I don't think that the overseer is lying. I think that his analysis is incorrect and misleading.

"AIG will be penalized and forced to pay this amount back to the US taxpayers"

We own 80% of AIG, so are we penalizing and paying ourselves back?

All the rats in Congress, both sides, were scrambling around yesterday blaming current and past administration for the problem. Who knew what and when did they know it?

Sen. Grassley said those receiving a bonus should kill themselves. What an idiot!! Sen. Grassley, please aske Sen. Dodd and Sen. Frank to fall on their swords as well, since most of the blame goes to them and their committees.

Harry "The Body" Reid and Chuck "Don't Get Between Me &That Camera" Schumer, screamed that they would force those receiving bonuses to give them back.

Two, of many, problems with that. 1) Employment Contracts. It would cost us more then the bonuses are worth to lose that court battle. 2) You can't tax the bonuses at 91% or higher, since that is unconstitutional: Bill of Attainment, plan ex facto.

This what you get when you trust the Government to run private business. They can't even run the Government.

I don't think so. Would I criticize Geitner? A bit. Would I criticize the overseer? Well, perhaps a bit. I feel a little sorry for the guy because he seemed to get stuck in a situation where he had lots of responsibility and relatively little authority to change things. Would I criticize Congress? Sure. They might have anticipated some of the problems.

But I firmly believe that the bulk of the problem rests with:

1. The ineptness of the Bush Administration and enablers like Phil Gramm

2. A whole class of overpaid financial professionals who pushed all these financial instruments and now seem to want to be not only excused but rewarded for their shenanigans. These are the people that I see "behind the curtain." To the extent that the "overseer" was seen to be excusing them, he was wrong. I think that not only should these guys lose their bonuses. I think that their entire performance should be reviewed and many of them should be dismissed.

I would do my best to turn it around. If the average salesman is moving 5 units per month and I need for him to move 7 to be profitable, I've got a problem. But...waht of the guy who moves 15 per month..even though I'm currently losing dough? Well...I'm going to bonus him handsomely. And..I'm certainly not going to shriek that he's a liar and a fraud, and tell him to get the hell out of my office - because nobody's gettin' nothin' until I show a profit.

I am not saying that they don't have some responsibility. But you seem to excuse everyone else - especially Republicans and crooked and/or incompetent financial professionals.

In my opinion, the AIG execs doing the credit default swaps breached their contracts. They should be fired and replaced and they should definitely not receive bonuses. They are the private sectors that violated the public trust and brought about a market failure. The onus of the problem falls on them. You can be damn straight that those same assholes would be suing their employees up the yin-yang for similar contractual breaches.

I am all for those financial professionals finding work in McDonalds or Starbucks or a grocery store.

spreadsheet:

The mob is convinced that the best way to run a company is to berate, bully, and belittle its management. That's okay...once the mob has driven its company into the ground, it can fling the blame every which way but on itself.

As to the proximate issue..it's all a matter of chickens and eggs. The fact of AIG's downgrading from AAA, and the resultant demand for additional liquidity actually WAS a critical factor in their travails. That doesn't necessarily excuse anyone, rationalize anything AIG's done, nor does it mean they shouldn't been downgraded and called upon to further collaterize.

Nevertheless..if we're to run our company profitably, we need to do so from a point of reason, not one of feelings and anger. Calling out AIG's CEO...who was actually brought on board AFTER their collapse, as a liar or dissembler, when he's simply speaking the truth, is foolish...no matter how good it may feel.

In what economic world is liquidity (insurance to cover your costs) not the right thing?

spreadsheet:

I would do my best to turn it around. If the average salesman is moving 5 units per month and I need for him to move 7 to be profitable, I've got a problem. But...waht of the guy who moves 15 per month..even though I'm currently losing dough? Well...I'm going to bonus him handsomely. And..I'm certainly not going to shriek that he's a liar and a fraud, and tell him to get the hell out of my office - because nobody's gettin' nothin' until I show a profit.

But if told the customer that he was getting a Cadillac, but was actually selling a flood damaged Impala - would he still deserve/get the bonus?

HRL3rd:

AIG "overseers" this morning stated that the failure of AIG was NOT a result of the Credit Default Swaps (gambling) that they participated in, and was NOT a result of the Securities Lendings (more gambling) that they participated in. No, neither of these caused the downfall. According to them, the downfall was caused because of requirements that they actually have enough "liquidity" to cover their bets. If nobody had actually, truly, expected them to have enough money to cover the bets, they'd still be solvent today.

Well, there you go - if we had only let the smoke and mirrors run happily along, the disaster could have been avoided.

Give me a break.

very good post my friend...

I SPECIFICALLY qualified that I wasn't passing judgement on the concept of collaterization. Which....kind of makes me wonder why I bother qualifying at all.

But...the fact is that AIG wasn't required to collaterize before, then all of a sudden they were. Ethicality, morality, and righteousness aside....this new liquidity demand WAS one of the proximate causes of their "issues". If we're to run our new company efficiently and profitably, we have to make some effort to consider their operations dispassionately....and not obsess over scoring ideological points.

Spreadsheet,

Truth be told spreadsheet, this is a topic that I actually have a lot of experience dealing with. I will grant your point that changing the rules created problems for AIG because it created an atmosphere in which there needed to be radical readjustment.

The problem with trying to do radical changes with the same old staff that created the problems in the first place is that the old staff almost always falls back into bad habits and have a lot of difficulties adjusting to new realities. Now, from what I understand, it was - unfortunately - much easier to change the rules and keep the old staff than it was to change the rules and selectively replace a lot of the old staff. Ideally, that is what I think should have been done. It would be a mess no doubt. Much like Katrina. But you could have found new and more suitable managers.

I do understand why this didn't happen earlier under the circumstances. However, finding a staff that can work within the new rules is critical - more critical than the bonus stuff (which involves righting a wrong of the old process.)

Like I said in another post, I would not lose a minute's sleep if some of the AIG clowns lost their homes and ended up working in Starbucks. That is a comedown but for many of them a well-deserved comedown. The "golden parachute" mentality is all too rampant IMHO.

I'm all for sifting through and getting rid of the deadwood. But...there's considerable evidence to suggest that that process has already occurred to some degree.

My guess - and of course, it's just a guess - is that IF we were to put the individual contract/bonuses that are now in question, under a microscope, we'd find them to be remarkably akin to "earmarks". "We" love to hate on earmarks from a broad ideological perspective. But...when we look at them one by one - especially in the current context - we tend to see their reason. Sort of like, "I hate earmarks BUT...this one looks alright, and this one's the exception to my rule, and well....this one makes sense........."

And...I would suggest that Obama knows this, and was trying to avoid making a huge issue out of the bonuses...and avoid adding all this counterproductive friction to his overall scheme. But....."the people" would have none of it. "The people" wanted heads to roll. That's the people's right. And...perhaps they ARE smarter than Obama. But..they shouldn't get to whining if Obama doesn't pull rabbits out of his hats. After all, there's a price to be paid when we substitute our judgement, for that of the people we've hired to solve the problem.