AIG and the Blame Game

A friend posted a great article from Vanity Fair about the insiders at A.I.G. on Facebook.

Though it may be accurate, the article seems to miss the forest for the trees. I can't help but feel the article blames the players, rather than the game itself. Here are my thoughts on it:

In his efforts to rightfully exonerate Jake DeSantis's role at AIG, Lewis wrongfully shifts the blame on the insecurities of Joseph Cassano. Cassano was a dupe, just a sucker unlucky enough to be holding the bag in the end. Whether AIG took on all these credit-default swaps themselves or, as Lewis points out, someone else did-- “There was no real reason that company had to be A.I.G.; it could have been any AAA-rated entity with a huge balance sheet. Berkshire Hathaway, for instance, or General Electric. A.I.G. just got there first.” --isn’t the issue now that it is time to assess blame for the “greed” that created this. These were all just players playing a game created by someone else. That “someone else” is the Federal Reserve.

And Lewis does touch on the real culprit in all this mess. “In the run-up to the financial crisis there were several moments when an intelligent, disinterested observer might have realized that the system was behaving strangely. Maybe the most obvious of these was the effects of U.S. monetary policy on borrowing and lending. The combination of the dot-com bust and the 9/11 attacks had led Alan Greenspan to pump money into the system, and to lower interest rates.” Low interest rates created the atmosphere in which these institutions had to operate.

The Federal Reserve--an unregulated, unauditable private entity, kept interest rates artificially low to “stimulate” the economy, which forced financial institutions to seek out higher risks to make profits. The only thing that can truly “regulate” greed is fear. The Fed removed that up front. Higher interest rates would have “slowed” the economy, but given financial institutions the opportunity to make their profits on more quality investments.

Now out of fear of systemic risk the government continues to subsidize this greedy behavior by backing these (“too big to fail”) bad investments. What incentive does anyone have to fear risk, knowing the government will be there to put them on life support when things go bad? If something is rotten, it should be allowed to fail. Then next time, fear will actually be allowed to do it’s job: regulating greed.

And if those in congress are truly upset by these people getting huge bonuses, they should stop taking the contribution checks THEY receive from these institutions. They are all hypocrites pointing fingers at each other. Wall Street, The Federal Reserve, and government intervention all deserve the blame for this crisis and, just as importantly, it’s future continuation. None of these groups want to “fix” anything. They all get their money from this faulty system and we, the common citizens are left paying for it.

BTW- the three biggest recipients of cash from AIG in the last election cycle? Obama, Dodd, and McCain.

http://www.opensecrets.org/orgs/toprecips.php?id=D000000123