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.

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1 comment so far

  1. […] Posted March 18, 2009 Filed under: Uncategorized | In an earlier post, I had been wondering why Gary Pasciucco, the guy who’s job is to dismantle AIG Financial […]


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