Through Vanity Fair
Evil Genius?
- AIG has cost the U.S. $182.5b so far
- “He and the other traders had been required to defer about half of their pay for years, and intertwine their long-term interests with their firm’s. The people who lost the most when A.I.G. F.P. went down were the employees of A.I.G. F.P.: DeSantis himself had just watched more than half of what he’d made over the previous nine years vanish.”
- “the public explanation of A.I.G.’s failure focused on the credit-default swaps sold by traders at A.I.G. F.P., when A.I.G.’s problems were clearly broader…There were the fund managers at A.I.G., the parent company, who had blown nearly $50 billion on trades in subprime mortgages—that is, they had lost more than A.I.G. F.P., whose losses stood around $45 billion.”
- “Depending on which account you read, you thought they had lost $40 billion, or $100 billion, or $152 billion.”
- He also explained that he had for a year spent up to 14 hours a day helping to dismantle the company and that he and the others who had nothing to do with the losses had agreed to do so based on the promise their contracts would be honored.
- they all were fairly certain that if it hadn’t been for A.I.G. F.P. the subprime-mortgage machine might never have been built, and the financial crisis might never have happened.
- By 2001, A.I.G. F.P. could be counted on to generate $300 million a year, or 15 percent of A.I.G.’s profits.
- The typical hedge fund kept 20 percent of profits; the traders at A.I.G. F.P. kept 30 to 35 percent.
- The traders at A.I.G. F.P. had essentially unlimited capital on tap from the parent company, along with the AAA rating, rent-free.
- They were required to leave 50 percent of their bonuses in the company, but they were happy to do so; many of them, viewing it as the best way to grow their own savings, invested far more than the minimum back in the company. When it collapsed, the employees lost more than $500 million of their own money.
- Joe always said, ‘This is my company. You work for my company.’ He’d see you with a bottle of water. He’d come over and say, ‘That’s my water.’
- But even here the story’s messier than its broad outlines. For a start, the guy who had the most invested in A.I.G. F.P. was Joe Cassano. Cassano had been paid $38 million in 2007, but left $36.75 million of that inside the firm. His financial interest in A.I.G. F.P. struck those who worked for him as secondary to his psychological investment: the firm was, by all accounts, Cassano’s sole source of self-worth, its success his lone status symbol.
- Even now A.I.G. F.P.’s $450 billion portfolio of corporate credit-default swaps, which dwarfs the $75 billion portfolio of subprime-mortgage credit-default swaps, has avoided losses.
- And in the early 2000s, the big Wall Street firms performed this fantastic bait and switch in two stages. Stage One was to apply technology that had been dreamed up to re-distribute corporate credit risk to consumer credit risk
- In June 2004 the Fed began to contract the money supply… from June 2004 to June 2005 prime-mortgage lending fell by half. But in that same period subprime lending doubled—and then doubled again. In 2003 there had been a few tens of billions of dollars of subprime-mortgage loans. From June 2004 until June 2007, Wall Street underwrote $1.6 trillion of new subprime-mortgage loans and another $1.2 trillion of so-called Alt-A loans
