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AIG collapse: Focusing our anger

By Steve Petty/Look Again

I was working on my computer when I got the news flash from the New York Times. AIG would be paying out millions of dollars in bonuses to the upper echelons of the Financial Products unit, the very group that brought the house down last summer. I was stunned! I was angry!

The nasty thing about anger is that by its very nature it is irrational. We move from one anger to the next with little question about the facts, as if righteous indignation were its own justification. At the same time, we ignore things of even greater importance, choosing to abide with them because they are known.

Indulge me in a fable. Imagine a frontier town; it has a bank and a church, school house and teacher, barber/surgeon, hotel and restaurant, a couple bars, a blacksmith, cobbler, miller, tailor, undertaker, and butcher. Everyone gets along peacefully. They have no need of a sheriff. Everyone lives a happy, content life with no outside interferences.

One day, into this idyllic hypothetical scene, there comes a smart thief, he only steals enough to get by, a couple chickens at first. He hits the bank for a hundred dollars. Because he is a really good shot, no one challenges him. People know it is wrong, but he isn’t taking too much, so they learn to live with it. Besides, he is kind of a colorful character, he spends well in the shops, and the town is prospering, so they ignore him and good times abound.

Then one summer the rains don’t come, the crops are poor, the cattle are skinny, money gets tight. Now when he steals the town people are really upset so they send for a nearby gunslinger to come in and rescue the town. When he arrives, they pin a badge on him give him $100 and say, “You are the sheriff. Please restore peace to our town.” The Sheriff goes out into the town and meets the thief, who says: “How much are they paying you?” The Sheriff says $100, so the thief says, “Here’s $200, now go away.” The Sheriff pockets his $300, takes off the badge, hands it to the thief and rides out of town.

The town people are horrified, the thief is amused, and nothing changes. Then a terrible winter comes upon the town, cattle are dying, silos are empty, people are going hungry and cold, while the thief is holed up in the hotel eating like a king.

Finally, the bank runs out of money, and there is nothing left for the thief to steal. The town’s people decide to hire another gunslinger. They offer him $1,000, but they promise to pay only after the thief is dead. This time the thief has no money to pay him off, so the gunslinger shoots the thief in the middle of the street. The town’s people then rush the gunslinger, overpower him, hang him and refuse to pay his widow.

Which part of the story makes you angry?

This is the story of American International Group, AIG. Everything about it makes us angry. But these three things especially:

1. There is little doubt that Credit Default Swaps (CDS) were legal, and also highly unethical. The town’s people should have stopped it right away. Hank Greenberg, former head of AIG, should never have allowed the creation of the Financial Products Division, but his greed, ambition, and lust for power, knew no bounds. He did the legal and unethical eagerly. We can be angry at Hank.

2. Former FDIC Chairman Alan Greenspan felt that “no one would be that greedy” (his words) so there was little reason for Congress to regulate this new derivatives market. Congress, ever vigilant to find an opportunity to do nothing, accepted the campaign contributions of the well healed, and did their very best nothing. They put down the badge and left town. We can be angry at Greenspan and at Congress.

3. Joe Cassano continued to run AIG-FP, even when it was obvious that the whole enterprise was a house of cards. Under Cassano, bonuses amounted to about 20 percent of the total profit earned by the FP unit, as much as $616 million a year. We can be angry with Cassano and his group.

But, all of those individuals are out of the picture. Greenberg was forced out. Greenspan retired. Cassano was forced out, too. The villains are dead.

After AIG collapsed in humiliation, no one wanted to work for AIG-FP. Yet the government in taking over the company last summer, needed knowledgeable people to come in and unravel the toxic CDSs, sell off some parts of AIG, and try to recoup some of the taxpayers’ money. The FDIC and Treasury went out and hired the best people they could get, often paying salaries of $1 a year, and promising bonus money down the line for their service.

Edward Liddy, AIG’s new CEO, was castigated by the press and Congress last week. But Liddy was hired in September 2008 and had nothing to do with the problems he is trying to fix. Gerry Pasciucco, who was hired by Liddy in November 2008 to wrap up FP, turn out the lights and lock the doors, also is part of the solution. It was in the township’s (taxpayers’) best interest that the final gunslinger was fast enough to kill the thief.

But it makes no sense at all to be angry at the people we (the taxpayers) hired to fix the problems. We may not like the bill the plumber hands us when we are standing knee deep in sewage, but telling him he will have to finish the job for free, when the job is only half finished seems terribly unfair not to mention unwise.

What seems fair to you? What makes you the most angry?

The Rev. Steve Petty is pastor of First United Methodist Church. He welcomes your e-mail at spetty.record@verizon.net.

March 27, 2009