I have been enjoying the first two parts of The Washington Post's series on AIG's role in the financial crisis. Of all the places where taxpayer money has been wasted in this series of bailouts, the most galling to me is the $150+ billion (so far) to compensate uninsured creditors of AIG. So it is nice to have some reporting from The Post about how we got here. Reading the early sections of Part I of the series (covering the Financial Products division through 1998), we find this:
But it took more than technology to realize their vision. It took a culture of skepticism. The firm set up a committee to examine all transactions at the end of each workday, searching for flaws in logic, pricing and hedges. "Everyone kind of understood what the nature of the game was. . . . This was not a company that involved speculating," said Tom Savage, a mathematician from Drexel who joined the firm in 1988. "So it was everybody's job to criticize and double-check other people's opinions about what was appropriate business and what wasn't."<!--break-->
It is some lesson in organizational behavior to learn how that attitude gave way to practices that led to an epic meltdown of default swaps. The details of AIG's demise don't change my view of what's going on: taxpayer money should never be used to cover AIG's obligations.