by Michael Lewis.
Toward the end of 2005, Cassano promoted Al Frost, then went looking for someone to replace him as the ambassador to Wall Street’s subprime-mortgage-bond desks. As a smart quant who understood abstruse securities, Gene Park was a likely candidate. That’s when Park decided to examine more closely the loans that A.I.G. F.P. had insured. He suspected Joe Cassano didn’t understand what he had done, but even so Park was shocked by the magnitude of the misunderstanding: these piles of consumer loans were now 95 percent U.S. subprime mortgages. Park then conducted a little survey, asking the people around A.I.G. F.P. most directly involved in insuring them how much subprime was in them. He asked Gary Gorton, a Yale professor who had helped build the model Cassano used to price the credit-default swaps. Gorton guessed that the piles were no more than 10 percent subprime. He asked a risk analyst in London, who guessed 20 percent. He asked Al Frost, who had no clue, but then, his job was to sell, not to trade. “None of them knew,” says one trader. Which sounds, in retrospect, incredible. But an entire financial system was premised on their not knowing—and paying them for their talent!
By the time Joe Cassano invited Gene Park to London for the meeting in which he would be “promoted” to the job of creating even more of these ticking time bombs, Park knew he wanted no part of it. He announced that, if he was made to take the job, he’d quit. (Had he taken it he would now be a magazine cover.)
Excellent article about the “delusion chamber” at A.I.G.
After tens of hours of research, and, especially in the academic economics journals now publishing research about the financial implosion, I’m beginning to get a purchase on what transpired.(And, to wrap your head around the structure of the financial crisis, is to comprehend how, in effect, a mountain of money could be conjured out of nothing.) It’s very complicated, but, where I end up is not complicated: like it was at Enron, the idea was to make as much money as one could and to do so without any thought about any consequence except for the consequence of riches.
Nowadays, there’s a bit of a Faustian bargain at work in the recovery. And, personal responsibility seems to be something only the little people are required to embrace. Many of those responsible have demonstrated that there is, in fact, such a thing as a free lunch. I predict our society will be soon again afflicted with another round of ‘shadow economy’ once the masculine players regain their potency.
The gambling—with other peoples’ money—seems to take place on its own weird planet. I don’t imagine for a minute that there’s some underlying set of moral principles that is common to the gamblers.What can you say about someone whose reputation for daring and acumen has been erased by their own hubris and stupidity, yet, nevertheless, sit licking wounds with $100,000,000 in the bank?