Wednesday, September 25, 2013

Janet Tavakoli — Congressman Cummings, "AIG Can Crush You Like a Bug"

It's a serious matter to say a company is lying on its financial statements. But AIG told big lies in August 2007. (More on that later.) So big that I met with Jamie Dimon, Chairman and CEO of JPMorgan Chase, and called Warren Buffet, famed investor and Chairman and CEO of Berkshire Hathaway.
If you hold meetings and make calls like that, you better be very sure there is big trouble. I was sure. AIG didn't admit its problems when there was still time to avoid disaster. Instead, it pushed back on the truth. In September 2008, it needed a government bailout.
Capitalism Doesn't Reward Failure, But Crony Capitalism Does
AIG was in serious financial trouble, and its employees didn't deserve bonuses for 2007, much less 2008. That's how capitalism works when a company is in trouble. Capitalism doesn't reward failure.
U.S. taxpayers bailed out AIG and its counterparties (who didn't deserve bonuses, either). Employees earned huge partial bonuses anyway, and no one went to jail. Now, five years later, AIG's new CEO, Robert Benmosche, is acting like a big smug guy who got away with something, because AIG did.
Benmosche didn't like that the government criticized AIG for paying lavish "partial" bonuses to hundreds of employees. He said only 10 employees were behind the bad trades. But that's how capitalism works. If your problems are so severe that it damages the entire company, employees don't get paid. Ill-managed companies in deep financial trouble aren't supposed to pay lavish compensation.
It gets a lot worse and Ms.Tavakoli names names.

The Huffington Post Blogs
Congressman Cummings, "AIG Can Crush You Like a Bug"
Janet Tavakoli | President, Tavakoli Structured Finance

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