Michael Lewis on A.I.G.(vanityfair.com)
vanityfair.com
Michael Lewis on A.I.G.
http://www.vanityfair.com/politics/features/2009/08/aig200908
9 comments
Most of the media don't have enough knowledge to get the story straight (remember that Lewis was once a bond trader), they just find the angle with the most emotional impact and drive it into the ground with very little regard for the actual facts. The politicians either don't realize how incorrect the reporting is, or can't be bothered to try to correct the oversimplifications and explain the real truth to voters, who are most likely to undereducated to understand it anyway. It's much easier for them to ride the wave of outrage in the direction of the nearest camera and then pound the table about how angry they are and how someone needs to do something about it and how they are people that will do it, even though some of them (such as Barney Frank) bear a share of the responsibility because they pushed the idea of better access to credit for "under served" (i.e. high risk) potential home buyers and because they blocked improved regulations at the GSEs that might have shut down some of the irresponsible lending.
Has anyone seen any good articles with an overview on what went wrong at Fannie and Freddie? I've seen bits and pieces but for the most part the silence is deafening.
Has anyone seen any good articles with an overview on what went wrong at Fannie and Freddie? I've seen bits and pieces but for the most part the silence is deafening.
One perspective I found interesting was http://oversight.house.gov/documents/20081209145737.pdf
It's strange how people don't notice problems when making huge amounts of money depends on things remaining the way they are. When it hits the fan, let the finger pointing begin.
The villain in this piece doesn't seem to be the overbearing, but somewhat clueless boss, but the Wall Street banks, in particular Goldman Sachs. It reminds me of Matt Taibbi's recent Rolling Stone article on "The Great American Bubble Machine", though without the screaming.
The villain in this piece doesn't seem to be the overbearing, but somewhat clueless boss, but the Wall Street banks, in particular Goldman Sachs. It reminds me of Matt Taibbi's recent Rolling Stone article on "The Great American Bubble Machine", though without the screaming.
Great article by one of my favorite authors. A couple of points - it's dangerous to have executives, regulators, and legislators dealing with financial instruments that are very difficult to understand. It's also dangerous to build models on historical data when the rules are changing. IMO the root of the problem was people like Barney Frank and organizations like Fannie Mae who pushed for more subprime lending.
I agree that the traders weren't the primary villains, although they certainly traded a hell of a whistleblower opportunity for a fat paycheck.
I refuse to believe there aren't real villains, that they have names, faces, addresses, and that they knew what they were doing and didn't give a shit.
http://solari.com/archive/freddie-fannie-penny-stocks/
I refuse to believe there aren't real villains, that they have names, faces, addresses, and that they knew what they were doing and didn't give a shit.
http://solari.com/archive/freddie-fannie-penny-stocks/
Michael Lewis always does a good job. He seemed to deliver a "Never attribute to malice that which is adequately explained by stupidity" type presentation.
Liars Poker, the account of his time on Wall Street in the 1980s, is a fantastic read.
It was an odd read. At first it starts out with the DeSantis story and him whining about how he and AIG FP were made out as the scapegoat. Then it goes on for four pages on how AIG FP loved the $$ they were making so just turned a blind eye to any risk or analysis.
I don't buy the excuse that the one boss is the villain just because he was an overbearing asshole.
I don't buy the excuse that the one boss is the villain just because he was an overbearing asshole.
I think you kind of missed most of the last half of the article. The overbearing asshole is not presented as the villian. AIG FP is not presented as "turning a blind eye", in fact they are described as halting much of their sub-prime involvement, if a little late; the article suggestts that if they had unwound the positions they did take before they realized the mortgage bundles were 95% sub-prime instead of 10% as they had been previously, AIG FP might have survived and the big banks would have had bigger loses.
If not realizing that 95% of your consumer loans (not just 95% of mortgages) are sub-prime mortgages, and then keeping them on the books because of what amounts to a pure gamble on housing prices isn't turning a blind eye to risk, I don't know is.
The article points fingers in a lot of directions, but it does spend quite a bit of time on Cassano. Maybe you pick him out if you're going to pick out one guy at AIG, but this was clearly a case of everyone involved carefully ignoring things that might have upset the money flows.
In the end there are some winners, and a lot of people left holding the bill (mostly taxpayers). Coincidentally, the winners, by and large, happen to be the ones with the most political influence. See: http://fora.tv/2009/06/01/Michael_Lewis_The_End_of_Wall_Stre...
The article points fingers in a lot of directions, but it does spend quite a bit of time on Cassano. Maybe you pick him out if you're going to pick out one guy at AIG, but this was clearly a case of everyone involved carefully ignoring things that might have upset the money flows.
In the end there are some winners, and a lot of people left holding the bill (mostly taxpayers). Coincidentally, the winners, by and large, happen to be the ones with the most political influence. See: http://fora.tv/2009/06/01/Michael_Lewis_The_End_of_Wall_Stre...
I have liked Michael Lewis's writing since I read "Moneyball", which I highly recommend by the way. This article is pretty good, although not as math and statistics oriented as some of his good sports writing.
I think the large scale destruction of trust in the finance and investment world is going to be very hard to rebuild. I am not sure of all the implecations of that, but I think people of my generation are never going to poor money into the stock market via 401k or otherwise invest in the quantities and ways that the previous generation did.
The distruction of trust extends to the other side of as well, I think people like me will be much more reluctant to take on debt. This extends to starting businesses as well as consumer and housing debt. I have reached the point where I really don't give much thought to any startup idea that requires venture capital or other outside lending.
I think the large scale destruction of trust in the finance and investment world is going to be very hard to rebuild. I am not sure of all the implecations of that, but I think people of my generation are never going to poor money into the stock market via 401k or otherwise invest in the quantities and ways that the previous generation did.
The distruction of trust extends to the other side of as well, I think people like me will be much more reluctant to take on debt. This extends to starting businesses as well as consumer and housing debt. I have reached the point where I really don't give much thought to any startup idea that requires venture capital or other outside lending.
was posted several days ago: http://news.ycombinator.com/item?id=686344
for what it's worth - my summary:
-AIG FP was created in 1987 when Howard Sosin, former Drexel Burnham, created a model on how to value and trade interest-rate swaps
-The company to make money insuring these transactions could not be a bank (which would be bound by law to hoard unreasonable amounts of collateral), but needed AAA status: thus... an insurance company
-AIG stops sub-prime mortgage insurance business in 2005 after realizing that 95% of their mortgage-related portfolio is sub-prime
-Other firms instead jump into the lucrative market after 2004/2005... Wall Street underwrites 1.6 trillion $ in sub-prime and 1.2 trillion in Alt-A mortgages from 2004-2007
-AIG is bound by contract to provide collateral in case they lose AAA rating; as such legacy business (built up until 2005) traps them into bleeding collateral in the 2008 crash on their sub-prime credit default swap business
-In result AIG runs out of capital reserves to provide collateral
-By comparison, no money is lost on their corporate credit default swap business
for what it's worth - my summary:
-AIG FP was created in 1987 when Howard Sosin, former Drexel Burnham, created a model on how to value and trade interest-rate swaps
-The company to make money insuring these transactions could not be a bank (which would be bound by law to hoard unreasonable amounts of collateral), but needed AAA status: thus... an insurance company
-AIG stops sub-prime mortgage insurance business in 2005 after realizing that 95% of their mortgage-related portfolio is sub-prime
-Other firms instead jump into the lucrative market after 2004/2005... Wall Street underwrites 1.6 trillion $ in sub-prime and 1.2 trillion in Alt-A mortgages from 2004-2007
-AIG is bound by contract to provide collateral in case they lose AAA rating; as such legacy business (built up until 2005) traps them into bleeding collateral in the 2008 crash on their sub-prime credit default swap business
-In result AIG runs out of capital reserves to provide collateral
-By comparison, no money is lost on their corporate credit default swap business
It's a good read.
It looks like we now have a face to blame for the crisis: Joe Cassano, and he did it thanks to his incompetence and insecurity.
It looks like we now have a face to blame for the crisis: Joe Cassano, and he did it thanks to his incompetence and insecurity.
If we (society, etc.) can't even get the story straight about what really happened, what hope do we have to avoid repeating the same mistakes that lead to this bubble 5/10/25 years down the road from now? We're screwed.