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May. 22 2009 - 11:03 am | 84 views | 2 recommendations | 20 comments

Don’t pin the recession on AIG’s Joe Cassano

Cassano, who ran AIG’s financial-products division in London, “almost single-handedly is responsible for bringing AIG down and by reference the economy of this country”, says Jackie Speier, a US representative. “They basically took people’s hard-earned money, gambled it and lost everything. And he must be held accountable for the dereliction of his duty, and for the havoc he’s wrought on America. I don’t think the American people will be content, nor will I, until we hear the click of the handcuffs on his wrists.”

via Joseph Cassano: the man with the trillion-dollar price on his head – Times Online.

First of all, I want to apologize to readers for my long absence. I’ve been on a deadline for a gigantic Rolling Stone article and have not slept much the last three or four days. My eyes are at least four or five times their usual size; I look like one of those nocturnal lemurs from Madagascar you see on the nature shows all the time. In fact after I finish here I’m going to go feed on some grubs and bark. What’s funniest is that I actually put a post-it note on my computer days ago reminding me not to post to True/Slant while I was in a sleep-deprived state (“You suck! Sleep!” it reads), and yet here I am.

Anyway Eric Salzman over at the always-funny Monkey Business blog sent me this piece on Joe Cassano, which I found interesting and slightly troubling. Having written one of many articles identifying Cassano as a key cause of the crisis, I guess I and people like me should have seen this coming — that at some point down the road a general consensus would form blaming some rogue individual for the financial crisis. And while Joe Cassano is certainly as guilty as a person can be, the notion that he alone is responsible for this mess is not only appalling but extremely dangerous. The people who would believe such a thing are the same people who believe that this crisis might have been avoided if a few minor changes had been made. I’ve heard people say, for instance, that much havoc could have been avoidded if there had just been a law mandating margin requirements for CDS contracts, so that people like Cassano couldn’t make bets without the money to pay off.

This is bullshit. And it’s dangerous bullshit. The problem isn’t a few technical glitches in the system that allowed the Cassanos of the world to drive Mack Trucks of leverage through a loophole or two. The problem is, at its roots, a profound collapse of morals on Wall Street that would have found its way to financial destruction using any available set of instruments and laws. We are talking about people who sold giant rafts of bullshit mortgages to pensions, who stuck municipalities, innocent taxpayers, with time-bombs of subprime debt. And not just one trader here and there, but thousands of them, with the sober approval of the highest level executives in the biggest firms. On its most basic level what these people did is rip off huge institutional investors — old people, taxpayers, you and me — by finding ways to game the system and trick the big institutional fund managers into buying what they thought were safe investments, but were actually financial lemons that could barely make it out of the lot.

It doesn’t matter what tools they used. That’s immaterial. Is it true that the CDO made it easier to fool the ratings agencies, made it simpler to sell crap as AAA-rated paper? Yes. But the operative problem here isn’t the CDO but the fact that someone who makes a million dollars a year was willing to sell crap as a safe investment to pensioners. An honest man does not do this. Are there used-car dealers who would? Sure. But that’s why we joke about used car dealers, and only trust them about as far as we can throw them, and generally don’t buy used cars until we’ve had our mechanic look under the hood.

These Wall Street players are enormously compensated, which supposedly means that society highly values their work and is willing to pay them a premium to do it. Having been given that kind of responsibility and trust, these assholes should not then force us to police them as tightly as we police those who we expect to steal from us, like third-rate car salesmen, telemarketers, hookers and three-card monty dealers. With that kind of money they should be setting an example. We are paying them as though they are leaders of society, so they should lead. Instead they ripped us off like common criminals. I mean, the level of morals here is astonishing. In my entire life I’ve never met a drug dealer who would even think about trying half the shit that banks like Goldman Sachs and Citibank pulled during these years.

Well, that’s not true — okay, I did once try to buy weed from a guy I didn’t know in Washington Square, and got ripped off. I was young and stupid. The guy sold me a bag of oregano and immediately, I mean immediately, took off running and disappeared down 8th street. Guys like that usually have a life expectancy of about ten minutes, because eventually they pick someone who isn’t some lily-livered white college student to sell oregano to and they get their heads beat in with lead pipes. That’s what happens in the actual world. In the world of high finance, what happens when they catch you pulling that kind of stunt is they give you fifty billion taxpayer dollars.

Still, you can be sure that people will find a way to blame the Cassanos and Madoffs of the world for all our troubles, and business will try to go on as usual. And we’ll have more catastrophes. It’s the nature of the beast.


Comments

2 T/S Member Comments Called Out, 20 Total Comments
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  1. collapse expand

    You identify a lot of the problems associated with the ‘pin the recession on somebody’ line of thinking.

    Reminds me of how nasty the Congress Critters got on Ed Liddy. The man was asked to lead the corporation out of the red and into the black. He had no hand in the debacle AIG created, yet he consistantly gets reamed about it.

    There is a good read up at PublicIntegrity.org about the top 25 companies and/or individuals that collectively led us into the bowels of hell. It’s called the SubPrime 25.

    All these asshats ignored their fiduciary duties with regard to other peoples money and their stockholders. All of them.

  2. collapse expand

    OffTopic-Cali’s Supremes will announce their decision on the Prop 8 case next Tuesday.

    • collapse expand

      I’ve said it before and I’ll say it again, why in the hell is exactly NO ONE being held accountable for all of this bullshit. It pisses me the hell off that through this financial mess (not to mention torture) that the people that threw us into this mess aren’t rotting in jail.

      As for the Prop 8 thing…living in Los Angeles, I had a front row seat. I’m amazed by the religious nuts who tell me “the people have spoken.” When did it become okay to vote on the RIGHTS of people? Is it me, or is that ass backwards logic?

      In response to another comment. See in context »
  3. collapse expand

    “An honest man does not do this. Are there used-car dealers who would? Sure. But that’s why we joke about used car dealers, and only trust them about as far as we can throw them, and generally don’t buy used cars until we’ve had our mechanic look under the hood.”

    And our mechanics (elected officials) pulled the dealers to the side and said, “Look – you give me a ton of cash and I’ll tell them that these are the best used cars I’ve ever seen and that they should buy them! And when they find out you’re selling lemons, and you start to lose business, I’ll make them give you even more money to pull your crooked ass out of the fire!”

    That’s ok people – keep voting for the D’s and the R’s!

    • collapse expand

      Short answer: Stop buying cars NOW.

      Haven’t owned one in years. I live close to where I work. Much easier life. Except for having to dodge crazy drivers in cars while one bikes, walks or takes public transportation to work.

      -Laz

      In response to another comment. See in context »
    • collapse expand

      “That’s ok people – keep voting for the D’s and the R’s!”

      Mark, are you starting an alternative party?

      Who else can we vote for?

      I don’t mean that in a snarky way.

      Nearly every thread on almost any bi-partisan political scandal includes some comment akin to how awful it is to only have these two choices, but I’ve seen something close to zero offers of real and feasible alternatives.

      Now if you suggested a push to alter our governing framework such that third parties actually had a chance at sustainability and power sharing, like several other democracies, I might agree. Unfortunately, I dread the national crisis that would be required to precipitate such a change.

      In response to another comment. See in context »
      • collapse expand

        jvill,
        There is no need to start yet another alternative party, especially when it comes to choosing a President. My ballot had probably a dozen choices on it – didn’t yours?

        Frankly, and also not meant in a snarky way, I have trouble believing you when you say you’ve seen,”zero offers of real and feasible alternatives.” Anyone with a mere 30 minutes of free time can go online and find a candidate with whom they agree on more issues than they do with the two majors candidates. The only thing stopping people from doimg so is the idea that it just can’t be done. I find that unacceptable.

        Suggesting that only a national crisis will bring about such change has two problems: First, you are admitting that you will never support an alternative unless pushed to do so by crisis! Excuse me for asking but, what the hell is that about? Why would you wait for some catasrophe before voting for an alternative candidate if you agree that he/she would be the best candidate now?!? I find that frightening to say the least.
        Secondly, if a large portion of the electorate voted for an alternative over several elections, don’t you think the message would be heard? How does voting for the two majors, over and over – no matter how bad they screw things up, make them more willing to listen to other ideas? They have no incentive to change.

        Regarding crisis – sadly, you may be right as to a crisis being the only thing that will push people to change. If so – I don’t fear it, I welcome it. As horrible as it sounds, I was cheering when the market was crashing. I used to say that I wouldn’t be happy until the rich were jumping from windows and the poor were in bread lines! Great problems require great solutions. I guess the problems aren’t great enough yet because all we’ve gotten is half measures wrapped in great rhetoric. I refuse to vote for those who offer nothing else. I vote for ideas, whereas far too many people just want to vote for who they think can/will win. Quite a hollow victory if you ask me.

        In response to another comment. See in context »
  4. collapse expand

    Short answer: All Americans must stop using credit cards NOW. Learn to live within our means.

    -Laz

    • collapse expand

      1. There are any positive benefits to short term lines of credit. Americans, of course, took it to the extreme. But in a country regarded for a culture predominated by commerce — as far back as Tocqueville — that’s pretty much what to expect.

      2. Our GDP is built upon consumption. 71% in 2007, as compared to China’s 36%. The U.S.’s rate of consumption is historically and economically HUGE. Dropping credit cards would likely send consumption into free fall. Not saying this wouldn’t have benefits, but the economic implosion that would result would also have some pretty nasty side effects as well.

      For example, the U.S. savings rate has shot up over the past few quarters from about .9% to about 4.9%. In a vacuum, this is a good things because it will likely lead to increased investment in the long run, which is a much better way to grow GDP. However, this savings has is coming out of our consumption rate, which is contributing to the recession and rising unemployment.

      On other words, your suggestion to abandon credit cards is admirable, but aside from losing some actual positive benefits, would also likely result is some pretty intense economic pain.

      In response to another comment. See in context »
      • collapse expand

        After a divorce in February 2004 forced me to move three times in a year, resulting in the scattering loss of most of my basic possessions (furniture, et al) I started over from scratch. I had a significantly reduced net income, but had not yet learned reduced spending habits. In 2005 I managed to buy an old house (built in 1907) with lots of charm and character– I had been renting it for a year– and the resulting monthly mortgage payment was $100 less than I had been paying for rent. But before I knew it, trying to making the house more habitable by replacing the ancient stone-age plumbing under the house, replacing the 1970 era appliances in the laundry and kitchen, and replacing all the floor covering on the 1,100 sq.ft. first floor (the house was a real dump when I first rented it– but it had charm), I found myself with significant credit card and credit line debt by the end of 2006. I was on the verge of going under financially, with credit bills overtaking most of my extra cash each month.

        In a panic, I consolidated my credit card and credit line debts, cut up the credit card, and stopped buying on credit altogether in April 2007. I still had a 1993 Chevy Suburban, with 200,000 miles on the odometer, and I resolved to drive it until the last bolt fell off. (It still runs great– but what a gas hog– 14mpg!)

        Now I buy NOTHING unless there is money in my bank account for my DEBIT card to draw on. I have found no inconvenience using a debit card: I can still shop on line– Amazon.com, etc– using the debit card, and I use the debit card, on-line banking, or write checks for all daily purchases now. Debit card purchases are better than checks, because they are posted to my on-line banking website generally overnight, but checks take days to clear before they can be posted, so I do not have to keep any petty cash on hand.

        During the two years since I stopped using credit, I have had to replace the rotting 8′x9′ deck outside my back door, and then, a year later, I had to replace the collapsing 8′6″ wide 9-step wooden staircase on my front porch. I paid cash from my savings account for both projects, at the time they were constructed. The old Suburban has cost $600 in car repairs over the past two years– it sure beats making a several hundred dollar monthly car payment!

        I keep a very tight budget, to the penny, on two separate spreadsheets for each month– for double entry accounting (I am not a trained accountant)– and I post the numbers daily from the receipts in my wallet. (I’m dying to tell CapitalOne: “THAT’s what I have in my wallet!”) On the last day of the month for each of the two spreadsheets, I transfer the money left over from that ending month’s budget to the savings account column on the first day of the new month, on each of the two spreadsheets for that new month. It’s amazing how quickly the savings can build up over several months.

        After paying my taxes this past April 2009, replacing my ancient printer, buying a router for a wireless home network, paying $450 in car repairs, and paying my tax accountant, I currently have $25 left in my savings account, so that means I have to become pretty frugal for the next several months, to rebuild my savings. I’ve done it before– I can do it again. I follow the same procedure month by month until I have enough saved for the next big hit against my account– probably the next one will be to replace the worn planks on the deck of the front wrap-around covered porch– but I will not do it until I have the money in the bank to do it– maybe there will be enough in the fall. If I do not have the money by then, I will wait until next spring, or maybe even the following spring. All of my fixed monthly payments (mortgage, utilities, electric, cable, telephone, child support, insurance, daughter’s college loan, etc, are paid on the first of each month, and what is left over is carried to a subtable below the fixed payment table on one of the two spreadsheets, where daily food and gas expenses are separated from the monthly fixed payments. The amounts from each day’s sales receipts are posted daily (it takes about 15 minutes). The sales receipts themselves are then kept in reverse chronological order (most recent on top) temporarily held together with a paper clip. On the last day of each month, I staple the receipts together, label them with the month and year, and throw them into another drawer.

        That spreadsheet subpart of the daily expenses has extra columns to calculate each day how much total cash remains in the checking account, the amount I can withdraw for food and gas on each of the remaining days of the month, the PERCENTAGE of the month’s total funds still remaining in the checking account, and the PERCENTAGE of the number of days remaining in the month. If the percentage of my remaining funds is less than the percentage of the days remaining in the month it is a WARNING sign to cut back on my daily spending– to do without steak and wine for a few days, if necessary– until the two percentage numbers reach parity again; it may take several days of reduced spending to have the two percentage parity numbers match again.

        This system has worked perfectly for me for the past two years. It has kept me from going bankrupt because I have no longer have rising credit card debts. In fact, it is now a steadily reducing debt.

        In response to another comment. See in context »
        • collapse expand

          On October 20, 2004 I was suffering from a bad case of getting the shit kicked out of my balls all day long. After that I stopped using credit cards to pay for things like Hummers and Ford f-450’s. Instead, I built a 12×3 penis shaped deck out of parts from my neighbor’s garage. Then a year later my wife decided I sucked at life and burned everything I loved in front of the whole town. I used to love capitalism, but really I just wanted to buy a cup so when people smashed my balls with hammers and bats it didn’t hurt anything but my feelings. Stalin lives.

          In response to another comment. See in context »
  5. collapse expand

    You are right to mention the moral component. Moral people would not do what Cassano and many others did. But we do not live in a moral age or a moral culture. Once you have made the accumulation of money the object of the enterprise, you can not complain about the people who seek to accumulate money for its own sake. Kevin Phillips outlined this in a series of books culminating in Bad Money. Marx set it out pretty clearly in Capital. Phillips referred to it as financialization, Marx as fetishism, either way, Cassano (and Liddy and Rubin — name your own bête noir) was doing what he was supposed to do. It’s not his fault (although he should be sued for any malfeasance and indicted for any crimes.) It’s our fault for letting smarmy plutocrats convince us that the accumulation of wealth was a worthy goal.

  6. collapse expand

    “The problem is, at its roots, a profound collapse of morals on Wall Street..” Perhaps this is a neurotic case of worrying about the intention of words but there are no morals on Wall Street. Morals are precepts derived from the belief that there is a unifying force to the universe that instills specific rules into the cosmos; see God. What happened on Wall Street is, individual ethics became dirtier than a porn star’s pap smear. I wonder, is it a coincidence that the collective breakdown in financial ethics occurs during quite possibly the most unethical Presidency in the history of the country?

  7. collapse expand

    “Regarding crisis – sadly, you may be right as to a crisis being the only thing that will push people to change. If so – I don’t fear it, I welcome it. As horrible as it sounds, I was cheering when the market was crashing. I used to say that I wouldn’t be happy until the rich were jumping from windows and the poor were in bread lines! Great problems require great solutions. I guess the problems aren’t great enough yet because all we’ve gotten is half measures wrapped in great rhetoric.”

    Behind that statement all the way, Mark Bolton. Thanks.

  8. collapse expand

    history and common sense prove that a purely “free-market” system (which is actually a misnomer since there’s nothing free about more money giving an individual more power to game the system) is as fallible as a purely socialist system. the best balance is one in which an educated and caring electorate pay attention as a private sector and a public sector keep one another honest. god willing, that’s what we’re heading toward right now.

  9. collapse expand

    Recommended Reading : The looting of America by Les Leopold.

    I thought I had a handle on the numerous Wall Street Acronyms of financial destruction. Looting Of America gives people like me a far deeper insight into what happened. I agree with Matt’s Post in that it wasn’t just one person we can lay the blame of the current mess.

    Nor can we blame one person for the larger the larger mess it will be come as the 5 Year ALT-A loans start resetting with an Average increase in payments of 62% this year.

    Defaults here and coming:

    Alt-A Currently running 70% before Resets.

    Credit card defaults in double digits with 941 Billion in out standing credit down only only 2.5% from it’s all time high. Banks may be cutting credit but as they raise rates and fees, the outstanding receivables stay more or less static.

    Commercial Paper of all kinds

    Home equity

    Car Loans and on and on.

    Bankruptcy filings are on pace to match 2004 this year and will probably fly past 2005 – the record year- like it was standing still next year.

    In short , we ain’t seen nothing yet.

    If we could class these as hurricanes, we got through a Cat 3 and have a Cat 4.5 headed our way. No way it will divert. “We Shot all our Guns at Once” at the Cat 3 and are out of Ammo.

    Leopold gives a more granular description of the devastation of the CDSs. It was called “netting”. Wall Street traders like to hedge bets and that’s what they did with CDSs. If they bought a CDS for 100 million with a premium of $20,000 a year (just a guess) and sold a CDS for a $80,000 a year premium. The $60,000 difference would be immediate profit.

    The problem with this hedge of course were the counter-parties. Chances are anyone who bought a CDSs, sold a CDS later. That meant as the counter-parties , starting with Bear began to roll over, that created a a domino effect for those who had netted positions. If a CDO went bad that they had bet on and sold on. They wouldn’t get paid on the bet but were liable for the ones they sold.

    If people wonder why the banks were bailed out that didn’t play by the rules, it was primarily because of the Netting of CDSs. We could take on Lehman. One more would have destroyed us. It’s just not the 500 billion that AIG took in bets, it’s all the funds and institutions that bet down the line that were in danger if AIG failed. Then it would have been a CAT 6 storm.

    The one area I don’t agree with is the myriad of prescriptions to take to make this shit go away. When something is this complex, it screams for a simple solution. I think the best way to go is have the FDIC give a one year warning. Any depository institution who hasn’t completely unwound and gotten rid of their CDSs and other off balance shenanigans will lose FDIC protection. Depositors would be notified by listing the banks that were in the largest jeopardy and at the same time listing banks that were in no jeopardy.

    This way we get rid of two problems. “The To Big to Fail” and CDSs. Banks will be frantic to unload their derivatives because losing FDIC protection is like draining them of blood. It also protects the system for systemic failure as the depositors money is transferred out of banks that went for the riches and into Banks who well, banked. The increase in deposits at these banks would break the logjam in lending. The requirements would be stiffer, but commercial loans for Business , and consumer loans would become available far faster as the bankers would want to put that new money to work.

    We still are going to go through some rough times, but it would rid us of the Zombies along with the power they wield in congress and set better foundations for recovery. Right now recovery is almost solely dependent on hope that the Big Banks Bullshit valuations will somehow become real if real-estate turns. That’s a foundation of water pocked ice.

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    I'm a political reporter for Rolling Stone magazine, a sports columnist for Men's Journal, and I also write books for a Random House imprint called Spiegel and Grau.

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