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Aug. 21 2009 - 4:03 pm | 53 views | 4 recommendations | 26 comments

Ladies and Gentlemen, AIG’s New Chief!

Benmosche told staff he was working to get Kenneth Feinberg, the Obama administration’s so-called special master for executive pay, to “buy into” a new compensation plan for all employees expected within months. Benmosche will get $7 million in salary and as much as $3.5 million a year in long- term incentive awards, AIG said.

“I want to make sure we all get paid competitively,” he said. “If you shoot the lights out in a given year, we should have enough flexibility to give you a big increase.”

via Benmosche Says He’ll Rebuild Units to Repay U.S. Update3 – Bloomberg.com.

This is via friend Eric Salzman over at Monkey Business Blog, who sent it to me under the subject line, “Low hanging fruit.”

The recently-crowned head of international financial embarrassment AIG, Robert Benmosche, has launched a campaign to “restore morale” to his beleaguered employees, who are apparently a) cracking under the strain of public anger and b) having performance anxiety that may be linked to a fear that they will never again be allowed to make obscene and undeserved bonuses, so long as the taxpayer is writing their checks.

This is very sad, no doubt, and must be a terrible burden for anyone working on Wall Street to have to bear. So into the breach steps Benmosche, who became CEO of the firm last month. His new public mantra is that what happened to AIG isn’t the fault of AIG, but rather the fault of the government regulators who allowed AIG to destroy itself and iceberg the hull of the American economy. This is how he put it:

“It’s time the people in Congress stopped talking about you as the problem, because you’re the solution,” he said. “It’s not your fault, it’s their fault, it’s the regulators’ fault.”

In reporting this story Bloomberg, following this quote, did not immediately add a phrase like, “Benmosche after uttering this appalling horseshit quickly stepped sideways so as to avoid the lightning bolt that rained down from the heavens, frying to a crisp two senior executives and the company’s communications chief, Christine Pretto.” Instead, Bloomberg saw fit to bolster Benmosche’s insane argument by writing this:

The Office of Thrift Supervision “fell short” in its oversight of AIG’s credit-default swaps, Scott Polakoff, a former acting director of the regulator told lawmakers at a hearing in March.

This is all part of a kind of new legend AIG is trying to sell to the public, which is that AIG was actually a very good, sound company that happened to be undone by a lone madman named Joe Cassano, whose tiny AIG Financial Products division destroyed the firm with its toxic CDS portfolio. According to this legend, the OTS should have caught wind of what Cassano was doing and put a stop to it, since it is clearly the job of the regulators, not senior management, to prevent the mismanagement of hundred-billion-dollar portfolios by corporate underlings. Because the government shirked those responsibilities, the more than 100,000 good employees of AIG ended up suffering when in fact they and AIG senior management was innocent of all wrongdoing.

Two things about this. One, let’s not forget that AIG went out of its way to cherry-pick the weak and understaffed OTS as its primary regulator by chartering an S&L called the AIG Federal Savings Bank in Wilmington, Delaware back in 1999. By this little maneuver AIG got itself declared a thrift holding company, which made the OTS, which only had one insurance expert on its staff, the primary regulator for the world’s largest insurance company.

Two, the notion that AIGFP was AIG’s only problem is bananas. It may not even have been AIG’s biggest problem. This legend obscures the fact that playing a nearly equal role in the demise of AIG was AIG’s securities-lending business, headed by yet another bombastic narcissist (AIG must lead the world in the hiring of these to senior management) named Win Neuger. Neuger back in the earlier part of this decade issued a clarion call to his subordinates, announcing a plan he called “10 cubed” — securing 1000 million (i.e. $1 billion) dollars a year in profits. Back in 2005 he told his staff that anyone who wasn’t on board with the plan to make a billion in profits a year could hit the road, literally, saying, “If you do not want to be on this bus, it’s a good time to step off.”

But how does one make a billion in annual profits in the normally staid, risk-averse securities lending business? By taking the collateral from the securities you lend out and investing it not in low-risk or risk-free instruments like treasuries, but in residential mortgage backed securities!

Neuger’s insane decision to bet billions in AIG collateral on the residential housing market was the other half of the story of AIG’s death spiral. Fully $43.7 billion of the bailout monies paid to AIG’s counterparties via the Maiden Lane facilities were tied not to Joe Cassano and AIGFP, but to the sec-lending operation. So is it plausible that AIG’s senior management could have simply not understood where all those billions in revenues from AIGFP were really coming from all those years? I don’t think so, but I know one thing for sure: it’s definitely not plausible that AIG’s senior management could have been unaware where the money was coming from from both Cassano’s and Neuger’s operations.

This was a company that was tired of the boring, safe insurance business and decided not only to take its assets and bet them on the residential housing market, but to borrow massively and double and triple down on those bets. This was a systemic, company-wide insanity. So for Benmosche to blame all of this on the OTS is… well, it’s characteristic of what these people are like. On some level they really believe that if the government is not kicking their doors in and wrapping them all up in hoods and zip-ties, then whatever they are doing is not only okay but good business.

Moreover, there’s this about Benmosche’s comments. It wasn’t the OTS that kept Joe Cassano on the payroll for a million bucks a month for seven whole months after it was revealed that he had incurred tens of billions in losses via his CDS portfolio, among other things by steering independent auditors away from his books, and after he had twice declared publicly that he could not foresee even “one dollar” of losses. That would be AIG that did that (they didn’t stop the payments until a month after the bailout).

And it wasn’t the OTS that decided to keep Win Neuger around as the Chairman and CEO of AIG Investments to the present day. Hell, Neuger is still an Executive Vice President of AIG. We the taxpayer are probably going to be giving this guy a nice bonus this year, because AIG couldn’t see fit to fire the man who single-handedly inspired $43 billion in bailout payments. It is for the right to increase compensation to valuable retained personnel like Neuger that Benmosche is now going to the mattresses with Kenneth Feinberg, Obama’s special master in charge of executive pay.

It gets better. Benmosche’s Knute Rockne address to the troops included a vote of reassurance to all those subordinates who might worry that the company’s status as the ward of a bunch of pissed-off, pitchfork-ready taxpayers should not deter any man jack of them from passing up any ethically-dicey chance to make money. Are you worried about what he regulators might think? Well, Benmosche says, don’t worry! Just put the ol’ nose to the grindstone and keep cranking out that “creativity”!

Benmosche told employees not to be immobilized by concern that they will upset regulators.

“My fear is that you’ll say, ‘I don’t know if Treasury wants it, I don’t know if the Fed wants it, I don’t know if the lawyers want it, I don’t know whatever,’” he said. “If you sit there every day not making the right decisions to take us to the next level, we’ll miss an opportunity.”

The Benmosche interview proves what most of us have long suspected, that the trip these Wall Street dickwads all took to the financial woodshed last year has taught them absolutely nothing. They believe implicitly in their divine right to make gigantic gobs of money, even if that money has to be borrowed from all of us, even if it means the entire financial services industry has to be backstopped by government guarantees. And the sad thing is that even a brief sojourn in the desert of fiscal modesty might help not only politically, but help them not suck at their jobs so much — but they don’t want to hear it.  They just don’t get that it’s exactly that hunger for big individual compensation that turns ordinary sane people into Joe Cassanos and Win Neugers. I mean, the clock hasn’t even struck a year on AIG’s bailout yet, and this clown is already whining in public that the government isn’t letting him pay out giant bonuses.The level of cluelessness necessary for a move like that is off the charts, like Stephon Marbury-level insane.

I agree with Salzman, this is an easy call for Tim Geithner. Or, it would be, if Tim Geithner had balls between his legs, instead of a pair of Ford Foundation cufflinks his Daddy bought him as a present for his graduation from Dartmouth. This guy Benmosche should not only be fired immediately, he should be doused in barbecue sauce and dropped in a pool full of mako sharks. At the very least as a signal to the public that someone is paying attention, this guy has to go.

But would you bet money on that happening? I wouldn’t.


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  1. collapse expand

    Brilliant. Tone-deaf gold medal goes to Benmosche. The oily slickattude
    is straight out of central casting.

  2. collapse expand

    Seems to me that an admission that “we’re only as good as regulations force us to be” is an open admission that deregulation is a complete and utter failure. And even a danger to the economy.

  3. collapse expand

    seriously, i’m done. i’m moving to new zealand as soon as possible. i know it’s a new set of problems, but it is now time to live a quiet life and get as far away from this one as i can. thanks for all of your writing, matt. it has helped.

  4. collapse expand

    “It’s not your fault, it’s their fault, it’s the regulators’ fault.”

    *proceeds to spend millions of dollars fighting attempts to regulate the industry*

  5. collapse expand

    For those having trouble understanding how these people think, and why amoral jerks rise to the top, I strongly recommend “Fooled by Randomness”. It is a fantastically brilliant and very personal book by a trader who’s of a very different bent.

    • collapse expand

      Taleb’s actually much more threatening than that (they can live with being “amoral”). He implies that half (or more) traders and executives are literally totally incompetent dangers to the economy. Review some of the pitiful non-math MBA management literature sometime, you’ll be amazed. I was reading the Harvard Business Review for a while, the advice “for the CEO” looked like intra-organizational propaganda for the dimmest “team”-members. The “leaders” are reading the rosy, positivist, inspirational garbage they should be crafting for the idiots. The monkeys are both flying the plane and eating all the bananas out of the cargo hold.

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

    If you put the same people on the same path that leads to hell don’t be surprised at how hot it is going to get.

  7. collapse expand

    How could you leave this out Matt?

    http://www.bloomberg.com/apps/news?pid=20670001&sid=azMHBdRR5d8Y

    Works one day and then goes on vacation for 2 weeks.

  8. collapse expand

    “On some level they really believe that if the government is not kicking their doors in and wrapping them all up in hoods and zip-ties, then whatever they are doing is not only okay but good business.”

    i think that’s exactly what should be done. Good plan!

    We seem just a bit hypocritical as a nation; when an event like a grenade going off in a market is considered a matter of national security, but these swine gamble away $43.7 billion, recoup their losses straight out of the American taxpayer’s pocket, and then just dance away scott-free with Kings’ hoards of cash and it’s considered free market capitalism that’s good for everybody…

    i need a barf bag.

  9. collapse expand

    Ah! The Hannibal Lector Defense — “You didn’t stop me from killing, how immoral!”

    This guy is just more of the same. I used to think that conscience-free leaders were an anomaly but it appears to be de riguer!

  10. collapse expand

    Yet another perfectly great illustration as to why Obama is tanking with Dems.

    Clearly not the change we were hoping for.

  11. collapse expand

    It took a revolution to rid the colonists of the divine right of kings. What’s it going to take to end the divine right to wealth?

    • collapse expand

      That’s funny you say that… I just finished Taibbi’s new piece “Sick and Wrong”. I didn’t think he could top the G$ story, but he has indeed outdone himself again.

      What strikes me about your statement is that after reading the Healthcare story, I couldn’t help but start seeing conceptual similarities between The Taibbi, and Thomas Paine.

      First, Paine was an Englishman, advocating for American independence from British rule. Now Taibbi may sprinkle his prose with words like ‘fuck’ and ‘horseshit’, but don’t be fooled: he was brought up in the New England prep school tradition, bumping elbows with all of those ‘noblesse oblige’ types (god I hate saying that). He knows how they think; how the current ruling class has the working class totally snowed. (To paraphrase the Immortal Carlin, ‘The Upper Class is here to do no ‘work’ and pay no taxes, the Middle Class is here to do All the work and pay All the taxes and the Lower Class, well, they’re just here to scare the fuck out of the Middle Class.’)

      Second, (to quote Wiki) “Paine wrote and reasoned in a style that common people understood”. Well it takes a little focus, and usually a dictionary for some of the more obscure terms and expressions, but his work is quite accessible to common people.

      Most importantly, “Sick and Wrong” is a scrupulously documented road map of the treachery and corruption plaguing every step, legislative and otherwise, of this pathetic excuse for a Healthcare Reform effort. It is a seamless continuation of (and in a way, a conclusion to) the narrative of high-level government corruption covered extensively in “The Great Derangement”. The piece is probably the single greatest, most lucid argument in existence today for Revolutionary Level political campaign finance reform, which gets at my final point: that Paine provided a ‘Common Sense’, apropos argument for America to rise up and take back the country from those who have co-opted The People’s interests (and money).

      Now, with “Sick and Wrong”, so has The Taibbi.

      Listen up working class Americans… Whereas we used to only have Carlin and whiskey neat, now we have an actual journalist. Therein is our only tangible measure of progress in the last 30 years. However, if enough of us take the time to read his common sense we will come to realize, that “We the People” are the only ones standing in the way of “Taking our America back” from the wealthy ruling ‘elite’ who have divided and conquered us and bought off our elected officials.

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

    Obama better do something quick to send a message to AIG and Wall Street or he is going to be blamed for the AIG,GS and Wall Street mess the Bush crowd created. Thanks again for bringing the true story of what is happening inside Wall Street out in the open. I will be interested to see if any of the large news organizations will pick up on how Bloomberg is spinning the outrageous comments from the new AIG leader. Geitner should work to give the guy another vacation, a permanent one.

  13. collapse expand

    This sounds like the Nazis after WWII sitting around and saying, “None of this is our fault. It’s all those Jews fault for having the nerve to want to live in this world.” Talk about Narcissism mixed with hubris.

  14. collapse expand

    Actually The Banksters learned quite a bit from the meltdown they created. They learned that no matter what they did, they would not be held accountable. In fact they would profit from their misdeeds, both financially and professionally.

    This will lead to more abuse of course (at the taxpayers expense) and why not; the revolving door between the boardroom and the Obama Administration will protect them so lets continue to plunder the Treasury.

    But it’s o.k., the corporate media has brainwashed the masses to stand up and support the rich and powerful at their own expense. After all, with a little luck they’ll be rich one day and they will want all of these perks too.

    Thanks for continuing to shed light on Wall Street Matt. At least someone is trying to hold someone accountable for the mess they created and continue to find ways to profit from.

  15. collapse expand

    The really sad thing is that the most any average American can do is call his/her congresscritters and urge them to, oh, I don’t know, head over to AIG HQ with torches and pitchforks or something.

    But if you don’t do that much, then you’ve got no right to complain about what happens next.

    Also: Matt, I’d be delighted if you’d call out fleetlee’s 7:35 am 8/22 comment. I think his analysis of the likely political ramifications of government inaction are spot-on.

  16. collapse expand

    I’ve come to dislike our “democracy” or whatever it is we live in. It’s hardly seems better than other forms of government.

    Not sure where I read it but someone said the one check the founding fathers left out in our “checks and balances” system was a check on Big Money. If we’re ever able to change anything again in this country, an ammendment to that effect would be a good place to start.

    • collapse expand

      @oldskool, We don’t need a constitutional amendment, we just need new legislators. The Congress has the power to regulate interstate commerce. In our networked world, all commerce is not only interstate, but intraplanetary. What we don’t have is a Congress that represents the will of the people.

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

    “It’s the regulators fault.” That is truly hilarious!

    Now, let’s see, it was the Group of Thirty (G30) that pushed for the widespread adoption of securitization and credit derivatives, citing that the main “impediment” was legal risk, which they, and so many others (see next para.), then pushed for the eradication of Glass-Steagall (via the Financial Services Modernization Act and the Commodity Futures Modernization Act).

    Next we have JPMorgan Chase in the early ’90s (ya know, where Blythe Masters created that Credit Default Swap thing, and Terri Duhon created the BISTRO) and their infamous Glass-Steagall: Overdue for Repeal report.

    Then we have that Derivatives Policy Group and their Framework for Voluntary Oversight program for letting the banksters go wild on securitizing and derivatives (the DPG consisted of Goldman Sachs, of course, as well as Morgan Stanley, Merrill Lynch, Lehman Bros., Credit Suisse Firt Boston, Salomon Bros.).

    Yup, obviously those regulators’ fault (any word from Madam Brooksley Born on that???).

    And what was AIG’s profit (thievery?) from the securitization of reinsurance?

  18. collapse expand

    One more item, did anyone else notice that AIG was supposed to have paid back $8.5 billion to the goverment in securitized notes?

    Just what is the true worth of those securitized notes, one wonders??????

  19. collapse expand

    Check out this vomit-inducing headline from Business Week
    http://www.businessweek.com/bwdaily/dnflash/content/aug2009/db2009083_086090.htm

    “AIG’s New Boss: Robert Benmosche
    The just named CEO will take over an insurance giant badly wounded by the recession, the bailout, and wrangles over fat bonuses”

    and then the comments

    * frank and jo Aug 5, 2009 7:26 PM GMT lets hope we become the company we once were.

    * Ezra and Olivia Aug 4, 2009 3:09 AM GMT You go Bob!

  20. collapse expand

    Remember when “bonuses” were something you received for a job well done? Remember when if you were a really good student in class, and did all your homework assignments the teacher would reward you with a gold star? Well, now you don’t even have to do a good job! Hell, in fact now you don’t even have to have started your job and you can get bonuses written into your contract. That way, when you start doing the same obscene policies that the guys did before you arrived there and that completely destroyed the system they abused to make obscene amounts of money resulting in being “shamed” by having to take government/taxpayer money to stay afloat, you’ll be well rewarded for your lack of ethics. And then you get a bonus for running the economy for the shitter. I don’t know what’s better, being a Insurance CEO getting paid bonus money to make easy because they’re illegal and you won’t be be reprimanded decisions, or being a first round NFL draft pick and making millions in guaranteed money before even having played one down of the game. This Capitalism thing really does work out great, for about 1% of the population that is.

  21. collapse expand

    AS INFURIATING AS IT IS, yet another excellent expose Matt! I hope that TGeithner et. al. get a whiff of this.

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