Archive for February, 2009|Monthly archive page

AIG and Gerry Pasciucco

This is an interesting article on AIG Financial Products, the division that is the core cause of all the AIG problems. Nothing groundbreaking, but a good overview. A couple interesting quotes:

Executives at Financial Products viewed the swaps as “free money” because computer models showed almost no chance of ever having to pay out. But the swaps contracts included provisions requiring the company to put up cash as collateral if AIG’s Triple A credit rating ever fell. When those downgrades came, signaling that AIG was no longer as reliable as it once had been, companies like Goldman Sachs that had done business with Financial Products demanded it put up billions of dollars.

I love this notion of “free money”. Nothing could ever go wrong in a scenario like that. The other interesting thing in this paragraph is the implication that the problem is just the collateral, as if the swaps are fine except for the collateral requirements. Given everything that is going on, there is a very real chance that real money (i.e. hundreds of billions of dollars) will need to be paid on these contracts. I’m sure that it makes the people involved feel better to think that the problem was just downgrades of AIG, but they are living in a fantasy world.

Gerry Pasciucco is the guy (from Morgan Stanley) whose job is to “dismantle” AIG Financial Problems. This quote makes me feel like all that taxpayer money is in great hands:

“Most of the business was written here appropriately,” he said.

What does that even mean? I suppose it could be true in a literal sense but it makes it sound like there were a just a couple transactions that were problematic and the place is otherwise fundamentally sound. That doesn’t square with anything that we’ve seen out there about the culture of the place.

Two funny things about Jon Winkelried’s retirement

Both of these are from a Dow Jones article about the retirement.

First, the notion that someone can make $50 million a year yet the company will not have “a material impact on the shares or operations from [his] retirement,” is pretty mind-boggling.

Second, he has a horse called “I Sho Spensive”. Really? I just can’t imagine how many layers of irony are needed to make that name remotely palatable.

Beyond belief – Emanuel Pleitez

I’ve seen some absurd comments, but this one has to be among the most impressive. I almost have to believe that this is a joke (from the NY Times):

Of course, mistakes were made on Wall Street, says Emanuel Pleitez, a 26-year-old former Goldman Sachs employee who quit his job a few months ago to run for Congress in his hometown, Los Angeles. But to a great extent, he says, those mistakes were born of misplaced trust.

“Look, you can talk about collateralized debt obligations all day long,” he said, referring to a type of asset-backed security that has gone famously toxic. “But there were ratings agencies that were supposed to tell us how risky these securities were. We essentially closed our eyes and said, ‘O.K., you say this is rated triple-A, fine, I believe you.’ ” In hindsight, he said, “Everyone should have been more skeptical.”

Yes, clearly the poor traders and bankers at Goldman were led astray by a nefarious plan by the devious ratings agencies.

The degree of self delusion and lunacy in that statement is truly mind boggling. Small surprise Mr. Pleitez is running for Congress.