{"id":1721,"date":"2009-08-08T08:07:37","date_gmt":"2009-08-08T16:07:37","guid":{"rendered":"http:\/\/hodakvalue.com\/blog\/?p=1721"},"modified":"2009-08-08T08:24:20","modified_gmt":"2009-08-08T16:24:20","slug":"did-elliott-spitzer-create-the-financial-crisis","status":"publish","type":"post","link":"http:\/\/hodakvalue.com\/blog\/did-elliott-spitzer-create-the-financial-crisis\/","title":{"rendered":"Did Elliott Spitzer create the financial crisis?"},"content":{"rendered":"
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\"Is<\/dt>\n<\/dl>\n<\/div>\n

Probably not.\u00a0 No one knows which of the many elements contributing to the meltdown of last September were necessary or sufficient to be labeled a cause, but Larry Ribstein connects the dots<\/a> in an intriguing way.<\/p>\n

Treasury Secretary Paulson was obviously willing to let Lehman go down.\u00a0 But he saved AIG in order to “mitigate broader disruptions<\/a>” in the economy.\u00a0 AIG was simply too big or too connected to fail, and their book of credit default swaps was the focus of Paulson’s concern.<\/p>\n

So, why did their CDS exposure get so completely out of hand?\u00a0 Larry refers to a piece Michael Lewis had written about AIG:<\/p>\n

Lewis blames everything on Joe Cassano, head of AIG Financial Products, whom Lewis dubs \u201cthe man who crashed the world.\u201d According to Lewis, Cassano was not a financial wizard \u2013 just a back office guy with \u201ca real talent for bullying people who doubted him.\u201d He became ascendant when the man who put him in power, and who could control him (Hank Greenberg), was forced to resign by Eliot Spitzer (so, hey, let’s blame all this on Spitzer).<\/em><\/p><\/blockquote>\n

And so he does, first by referring to a WSJ item<\/a>:<\/p>\n

More than four years later, the federal government has decided that it cannot even make a civil case for fraud against Mr. Greenberg, never mind a criminal one. The SEC has essentially settled with Mr. Greenberg on the charge that he was the CEO at the time that \u201cmaterial misstatements\u201d in earnings occurred. <\/em><\/p>\n

Yet even if one accepts the SEC\u2019s view of events, it may be a stretch to call them material, as they add up to less than 1% of AIG\u2019s net income during the period at issue. The accounting items in the SEC charges, which Mr. Greenberg neither admits nor denies, represent less than 10% of the restatement AIG filed to justify the Greenberg firing demanded by Mr. Spitzer. The impact on retained earnings was roughly $250 million, when AIG\u2019s total retained earnings at the time were approaching $70 billion.<\/em><\/p><\/blockquote>\n

So Larry concludes:<\/p>\n

The bottom line:\u00a0 if Joe Cassano was the “man who crashed the world,” Spitzer was the guy who gave him the keys to the car.\u00a0 And all this for his supposed non-fraudulent responsibility for a barely material (if that) accounting mistake, plus, of course, the boost to Spitzer’s then career. <\/em><\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

Probably not.\u00a0 No one knows which of the many elements contributing to the meltdown of last September were necessary or sufficient to be labeled a cause, but Larry Ribstein connects the dots in an intriguing way. Treasury Secretary Paulson was obviously willing to let Lehman go down.\u00a0 But he saved AIG in order to “mitigate […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14,9],"tags":[],"class_list":["post-1721","post","type-post","status-publish","format-standard","hentry","category-scandal","category-unintended-consequences"],"_links":{"self":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/1721","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/comments?post=1721"}],"version-history":[{"count":5,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/1721\/revisions"}],"predecessor-version":[{"id":1726,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/1721\/revisions\/1726"}],"wp:attachment":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/media?parent=1721"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/categories?post=1721"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/tags?post=1721"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}