Missing the point – Jake DeSantis

The leaked letter from Jake DeSantis (reprinted in the NY Times) is a good example of the kind of narrative that we have seen in a number of different places recently. The basic story is that he worked in AIG Financial Products but he didn’t specifically work with Credit Default Swaps, so none of this was his fault, he deserves his bonus, and everyone should just leave him alone. This letter is specific to AIG, but we’ve all seen the broader story across all the banks.

The problem is that this narrative is crap. If we have learned anything from this debacle (and from LTCM), it is that trades that appear “safe” or “consistently profitable” might have not really been generating actual alpha over time. He says that he worked in the equity and commodity groups. Do we know what would have happened if there had been a tail event in those markets at the level that there was in the CDS market? How much leverage were they using? Would the hundreds of millions of dollars that they had made over time been swamped by billions in losses? We just don’t know, and unless/until we did I’m not so convinced by this letter.

One other really odd point. He is an EVP, but there is this line:

You and I have never met or spoken to each other, so I’d like to tell you about myself. I was raised by schoolteachers working multiple jobs in a world of closing steel mills. My hard work earned me acceptance to M.I.T., and the institute’s generous financial aid enabled me to attend. I had fulfilled my American dream.

I know that title inflation is rampant, but is it really this egregious? How the hell is it that Liddy has never met one of the senior people in the org that is creating the need for the rescue that he is trying to pull off. Is he that disconnected?


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