Pinning Blame for the Crisis

If you’re looking to send your emotions on a rollercoaster today, may I suggest some light reading? It may take a few minutes to get through Matt Taibbi’s piece, “The Big Takeover” in Rolling Stone magazine on the federal bailout and its larger implications for America, but it’s an undeniably engrossing read. But after reading that, check out the letter in today’s New York Times re-printing a resignation notice from an executive in AIG’s financial unit to chief executive Edward Liddy.

Fair warning: Timid readers are unlikely to enjoy Taibbi’s colorful use of language, as he describes executives of AIG’s financial products unit – upon whom he pins much of the blame for the meltdown – wildly over-stating the value of their assets during investor conference calls, but he does a good job of unweaving some of the incomprehensible financial transactions that led to this mess. Moreover, he asserts that the very complexity of the current crisis, and the inability of the average taxpayer to understand it, represents a sea change in how our democracy functions:

People are pissed off about this financial crisis, and about this bailout, but they’re not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d’état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — “our partners in the government,” as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

Woah.

But while Taibbi clearly lays out the bad guys, of course nothing is ever that simple. Before you take up arms and run screaming toward Washington and Wall Street, check out this e-mail, printed in the New York Times today, and which is now their most popular article, reprinting the resignation notice from an executive in AIG’s financial unit to chief executive Edward M. Liddy, where he explains how few of his co-workers were responsible for the meltdown and his own attempts to reconcile the work he’s done with the bonus he received – and under what circumstances he was promised that money and for what type of work. From the letter:

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.