Yes, Criticizing AIG Bonuses Is Exactly Like Lynching People

Matt Taibbi responds to recent comments by AIG's CEO.

Matt Taibbi on recent whining by AIG's CEO:

Then Benmosche dropped one last bomb:

We're trying to find the villains [for the financial crisis]. There's got to be a villain somewhere. The problem is that there isn't a villain. There are villains. And they are everybody. They are the speculators in real estate. The people who flipped houses. People who lied and cheated [on mortgage applications]. Nobody did the income appraisals. … I include myself in there. I knew stuff was wrong.

Benmosche worked in high-level positions at both Credit Suisse and MetLife in the pre-crisis years, so one assumes he's talking about those jobs when he hints there was a time when he "knew stuff was wrong" with the mortgage bubble but apparently didn't say anything. So he kept his mouth shut and got rewarded for non-acting in the face of crisis with a job running AIG, where he sucked millions in comp from the taxpayer for years, which must have seemed only natural to him.

In tossing out this "everyone was a villain" line, the CEO, of course, only mentioned the small subset of ordinary people who were "villains" in those days, the low-level speculators who flipped houses and the homeowners who lied on their mortgage applications.

He conveniently left out the bigger institutional players who birthed this scheme, like the giant investment banks (including for instance Credit Suisse, where he worked) that not only knew that mass fraud was being committed at the mortgage application level but encouraged it, so that they could speed up the process of pooling and securitizing those mortgages and selling them off to unsuspecting third parties. Just to take the one example of his own former bank, investors in the mortgage securities sold by Credit Suisse incurred over $11 billion in losses, according to a complaint filed by New York AG Eric Schneiderman against the firm last year.

Banks knew, lenders knewratings agencies knew, and then of course firms like AIG knew that something was deeply wrong with the booming mortgage markets in the years leading up to 2008. The peculiar trade of AIGFP was the obviously crazy practice of selling hundreds of billions of uncollateralized insurance to the Goldmans and Deutsche Banks of the world, who in many cases were using these policies to bet against their own products.

The 377-odd employees of that sub-unit of AIG took home over $3.5 billion in compensation for such socially-beneficial service in the seven years before it all went bust. If finance-sector pros in those years had reservations about where all that money came from, most, like Benmosche himself, kept them to themselves.

Stories like this "hangman nooses" thing give some insight into the oft-asked question of how the 2008 crisis could ever have happened, the answer being that the people who run our economy, like Benmosche, are basically idiots. They can read a spreadsheet and get through an investor conference call sounding like they know what they're talking about, but in real-world terms, your average pimp is usually an Einstein in comparison.

These people are so used to being told by interns and finance reporters and other ballwashers that they're geniuses that they pretty soon come to believe it, which is how concepts like "We'll never lose a dollar – it's all hedged" go unchallenged in rooms full of econ majors who've just bet the whole store on the mortgages of underemployed janitors and palm-readers. Somebody, please, tell these guys quick how smart they're not, or else we'll be in another crisis before we know it.

About Susie Madrak

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