A Buccaneer’s Arrogance

Edward M. Liddy grew up in New Brunswick, New Jersey, earned a bachelor’s degree from Catholic University of America in 1968 and a master’s in business administration from George Washington University in 1972. He then began a long career in corporate America, including stops at the Ford Motor Company in Detroit, drug maker G.D. Searle & Co in Skokie, Illinois, and Allstate Corporation in Northbrook, Illinois.

During Edward Liddy’s apprenticeship in the buccaneering life he was exposed to the most influential teachers and lasting experiences. While at Searle, Liddy who was CFO worked for a CEO , Donald Rumsfeld, who has always epitomized the height of arrogance as demonstrated by a successful buccaneer. When he was at Allstate, Liddy presided over the company during and after hurricane Katrina, and Liddy observed first hand the effects of over exposure to risk and subsequent loss of trust when Allstate was faced with the massive losses suffered by homeowners in New Orleans, and Allstate subsequently canceled insurance policies and exited the business of insuring homeowners against casualty, lucrative as the business might have once been and could be.

He joined Clayton, Dubilier & Rice, a private equity firm operating in New York and London in 2008, and became a partner for a brief time, before being tapped for his latest expedition in the world of corporate insurance and finance.

Liddy who was a former director of Goldman Sachs (elected in 2003 when Goldman Sachs’ CEO was Henry Paulson, who would go on to be treasury secretary under George W. Bush), was then appointed as CEO of AIG after the ouster of Robert Willumstad by Paulson when the federal government seized AIG in June of 2008.

Throughout his apprenticeship, Edward Liddy was trained by the masters, and had plenty of practice in the art of separating the gullible from the coin of the realm. He became a wizard of the sorcery of making other people’s money in to greater treasure for himself and his backers, while exposing little, if any assets of their own, as part of the risk or underlying cost to produce the treasure chest. In June of 2008, Edward Liddy took the helm of one of the largest privateers ever to sail the financial oceans, which was crewed by a host of cut throat pirates, AIG. Liddy embraced his new shipmates with gusto, when in October of 2008, after United States taxpayers had sunk $84 billion in to loans to AIG to address its insolvency, he defended the decision of his fellow buccaneers to blow $400,000 on a corporate junket to the St. Regis Resort in Monarch Beach, California. In his subsequent testimony before the U.S. House Oversight Committee, Liddy stated that such retreats “are standard practice in our industry.”

Despite being hired by the American people to bring a sense of order, and propriety to AIG, to manage the remaining assets of AIG, to take appropriate actions to staunch the flow of more good money after bad money on behalf of the American people, Edward Liddy hoisted the pirate flag ever higher on his mast when he refuted the wishes of the president of the United Statess and the American people in his letter to Treasury secretary Timothy Geithner on March 14, 2008. Liddy refused to back down on the demand that he rescind the multimillion dollar bonuses paid out to the AIG staff and managers that were responsible for the company’s massive losses in 2008 which resulted in its take over by the United States government.

In closing his letter to the Treasury secretary, Edward Liddy had the pure arrogance to state:

I would not be doing my job if I did not directly advise you of my grave concern about the long-term consequences of the actions we are taking today. On the one hand, all of us at AIG recognize the environment in which we operate and the remonstrations of our President for a more restrained system of compensation for executives. On the other hand, we cannot attract and retain the best and brightest talent to lead and staff the AIG businesses – which are now being operated principally on behalf of the American taxpayers – if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.

Edward Liddy seems to have forgotten any early education he might have had at Catholic University of America and George Washington University relative to human moral values and business ethics. Mr. Liddy also seems to have never learned anything about Actuarial Science, which is defined on Wikipedia as:

Actuarial science is the discipline that applies mathematical and statistical methods to assess risk in the insurance and finance industries. Actuaries are professionals who are qualified in this field through education and experience. They must demonstrate their qualifications by passing a series of professional examinations.

Instead of sound, prudent, ethical business practices, instead of recognizing his fiduciary responsibility to the owners of AIG (the American taxpayers), Mr. Liddy is concerned about losing the services of those negligent AIG management and staff who made the decisions, made the deals, sold the dubious credit default swap “products” which destroyed the financial viability of AIG. The people and institutions who created, promoted and sold credit default swaps, the people and institutions who packaged the obviously dubious mortgage derivative products that were based upon substandard, and likely in many cases, patently fraudulent loans. The “financial geniuses” at the top of the buccaneering clan, who through gross negligence, if not out and out greed and avarice, who administered the coup de gras to our financial system, might not be incented to continue providing their “expertise and services” to those of us who ultimately are footing the bill for their egregious performance. This attitude, conveyed by Edward Liddy is the height of arrogance.

Maybe it is a Wall Street thing, or more precisely a buccaneering thing. That regardless if someone who may have a prior history of prudent management as an executive in the early stages of his career, may have an educational and work background that indicates a high level of intellectual development, that once that person becomes a member of the Wall Street financial plutocracy, the buccaneering clan, that person loses all ability to identify with or understand or empathize with the lot of the vast majority of the common folk who make up the population of the United States. Those common, hard working folk who through their consumerism, those folk who through their efforts to build their own bit of shared wealth and provide for their families, those folk who sacrifice and try to put something away for the future higher education of their children, those folk who manage to put something aside for their future retirement, so they will not be a burden upon their families or society when they are too old and infirm to work.

The common folk do not exist in the mind or the sphere of influence that the Wall Street managers cocoon themselves in, the world of buccaneers sailing the financial seas on their privateers, trolling not just for gullible common folk, but actually any person or entity, even relatives in the buccaneering clan itself, as targets of opportunity. Once arriving on “the street”, the Wall Street management and sales classes become mesmerized by the riches they see available for plucking, and embrace their role as a part of a buccaneering clan, becoming drunk on their booty. They sneer at the rest of us awash in the roiling seas in their wake, secure in their superior position aboard their privateers, arrogant til the end of time.

The only thing that will hinder, if not sink the current crew of buccaneers, will be to relieve their captain of duty, and clawback, a very apropos term, the treasure distributed as bonuses, and for those crew members who did not already jump ship, even after being paid “retention bonuses”, make them walk the plank. AIG and the American tax paying public do not need to bribe cut-throat pirates to stay aboard while the mess on the deck of AIG is swabbed up, there are plenty of other, honest, ethical, qualified members of the financial seafaring community who are capable of passing out life vests and unwinding the remaining risk exposures at AIG.

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• Paying the ‘best and brightest’ at AIG (guardian.co.uk)
• Obama will try to block AIG bonuses (guardian.co.uk)
• AIG Will Still Pay Out $160 Million in Bonuses (crooksandliars.com)
• AIG: Putting the Racketeering Back in the Insurance Racket (oxdown.firedoglake.com)
• Bailed-out AIG doles out $165 million in bonuses. (thinkprogress.org)
• President Obama: Block AIG bonuses (dailykos.com)

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The Funny Pages: Phil Spectacle Episode #8

Phil has a financial plan…

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Piloting The Bailout: Pirates At The Wheel

Treasury Secretary Henry Paulson has spent his initial allotment of $350 million in bailout funds, and it doesn’t seem as if there has been any impact on the economy.  Banks are still not making loans, businesses large and small have seen revenues decline, Detroit is about to implode, American workers are being layed off, left and right, and everyone is girding for a lean holiday season.

During his testimony before the House Committee on Financial Services yesterday, Secretary Paulson stated:

Recently I’ve been asked two questions. First, Congress gave you the authorities you requested, and the economy has only gotten worse. What went wrong and why won’t you use this authority for other industries? Second, if housing and mortgages are at the root of our economic difficulties, why aren’t you addressing this?

The answer to the first is that the purpose of the financial rescue legislation was to stabilize our financial system and to strengthen it. It is not a panacea for all our economic difficulties. The crisis in our financial system had already spilled over into our economy and hurt it. It will take a while to get lending going and repair our financial system, which is essential to an economic recovery. This won’t happen as fast as any of us would like, but it will happen much, much faster than it would have had we not used the TARP to stabilize our system. Put differently, if Congress had not given us the authority for TARP and the Capital Purchase Program and our financial system had continued to shut down, our economic situation would be far worse today.

The answer to the second question is that the most important thing we can do to mitigate the housing correction and reduce the number of foreclosures is to increase access to lower cost mortgage lending. The actions we have taken to stabilize and strengthen Fannie Mae and Freddie Mac, and through them to increase the flow of mortgage credit, together with our bank capital program, are powerful actions to promote mortgage lending. We are also working actively to reduce preventable foreclosures.

…We have done what was necessary as facts and conditions in the market and economy have changed, adjusting our strategy to most effectively address the urgent crisis and preserving the flexibility of the President-elect and the new Secretary of the Treasury to address the challenges in the economy and capital markets they will face in the coming months.

According to Secretary Paulson he and his crew have stabilized the situation, they have prevented the dominoes of our financial system from all falling.   Stabilizing the situation does not make the problems in the financial houses go away, it only postpones an ultimate reckoning.  It seems that Secretary Paulson, like his boss, is going to blithely walk-away from the mess, and leave it to the Obama administration to figure out how we (ultimately the taxpayers) will prevent any further hemorrhaging and repair our flawed financial system, and apply preventive measures so there is no recurrence.   Thank you George W. Bush for your leadership as you steered our ship in to these financial shoals, have a nice retirement.

While Secretary Paulson claims the situation has been stabilized, perhaps the secretary and his boss should be required to complete a lessons learned exercise.  Never mind a root cause analysis,  we know what caused the problem, a greedy financial sector aided and abetted by an incompetent, and criminally negligent administration.  To help the secretary and the lame duck with their assignment here are a few lessons they can compile for the next administration and Congress:

1. Do not appoint a pirate to regulate the pirates.
2. Study the legacy regulations, many of which were repealed but which had protected American tax payers for generations and bring  back sensible and necessary regulations on any entity engaging in business in the financial sector.
3. When the financial sector dreams up investment “products” that sound too good to be true (e.g. credit default swaps) release the forensic accounting hounds.
4. Aggressively investigate and prosecute systemic financial fraud, holding senior corporate officers personally accountable for the abuses committed  by their institutions.

In terms of the strategy for managing the disbursement of the remaining $350 million of the bailout fund, we can only hope that the Obama administration and the new Congress exercise due dilligence, and not feel constrained to continue any of the strategies or tactics employed by the current administration.  Just as there is more than one way to “skin a cat” there is more than one way stop and repair the damage done by pirates.

Someone who has a strong opinion on all of this is former Secretary of Labor and current professor at the University of California, Berkely, Robert Reich, who thinks the remaining bailout funds should be focussed on bottom-up spending.

I am no economist, no accountant or financial genius, I am just an American tax payer and soon to be beneficiary (hopefully) of Social Security and as far as I am concerned, I expect my government to prevent piracy on Wall Street, after all there are already plenty pirates out and about, we don’t need it at home too.

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Federal Reserve refuses to disclose where our money is going and to whom.

The fuckwits can not leave soon enough for me. From Bloomberg:

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn’t require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

“The collateral is not being adequately disclosed, and that’s a big problem,” said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. “In a liquid market, this wouldn’t matter, but we’re not. The market is very nervous and very thin.”

Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.

This is criminal and disgusting, we are talking about billions and ultimately trillions of dollars here.

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The latest Email Scam

Hat tip to Snergly Bear for passing this along, the latest Nigerian Bushliburton scam to fleece the American public:

Date: 9/23/2008
Subject: Supper secret transaction Need you’re help

Bright Greetings Dear American:

I need to ask you to support an urgent secret business relationship
with a transfer of funds of great magnitude.

I am Ministry of Treasury of the Republic of America. My country
has had a crisis that has caused the need for a large transfer of
funds of 700 billion dollars US. If you would assist me in this
transfer, it would be most profitable to you.

I am working with renowned Mr. Phil Gram, lobbyist for UBS, who
will be my replacement as Ministry of Treasury in January. As a
Senator, you may know him as the leader of the American banking
deregulation movement in the 1990s. This transactin is 100% safe.

This is a matter of great urgency. We need a blank check. We need
the funds as quickly as possible. We cannot directly transfer these
funds in the names of our close friends because we are constantly
under surveillance. My family lawyer advised me that I should look
for reliable and trustworthy person who will act as a next of kin
so the funds can be transferred.

Please reply with all of your bank account, IRA and college fund
account numbers and those of your children and grandchildren to
wallstreetbailout@treasury.gov so that we transfer your
commission for this transaction. After I receive you’re information,
I will respond with detailed information about safeguards that will
be used to protect the funds.

Wonderful salutations to you cherish friend from Republic of America.
Yours Faithfully

Minister of Treasury Paulson

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The Bailout: Compounding Greedy Misbehavior

A hat tip to Jim Leff who passed along a link to an article by University of Chicago Professor Luigi Zingales on why Paulson is wrong with the bailout plan he is trying to foist on the American people.

The Paulson plan, at a cost of $700 billion to the taxpayers is nothing but a golden parachute for those greedy investment banking and fund managers who facilitated the disaster at hand.  Instead of holding these individuals and corporate entities responsible for their bad judgment, the Paulson plan let’s them off the hook, to be bailed out by all the rest of us.  Zingales lays out a more appropriate reManage All Categoriesmedy to the situtation:

When a profitable company is hit by a very large liability, as was the case in 1985 when Texaco lost a $12 billion court case against Pennzoil, the solution is not to have the government buy its assets at inflated prices – the solution is Chapter 11. In Chapter 11, companies with a solid underlying business generally swap debt for equity. The old equity holders are wiped out and the old debt claims are transformed into equity claims in the new entity which continues operating with a new capital structure. Alternatively, the debt holders can agree to trim the face value of debt in exchange for some warrants.

Even before Chapter 11, these procedures were the solutions adopted to deal with the large railroad bankruptcies at the turn of the twentieth century. So why is this well-established approach not used to solve the financial sectors current problems?

Zingales goes on to write that in the current situation Chapter 11 actions would be too time consuming, but he does suggest alternatives that Congress and the administration ought to consider.;

The Paulson plan is just another typical Bushliburton strategy of using scare tactics to force Congress and the American people to jump when Bush pulls the chain.  Do we really trust anything coming from Bushliburton anymore?   Allowing Henry Paulson (former CEO of Goldman Sachs) to push his plan through is in essence giving the fox the keys to the hen house.  Bushlliburton policies and management of the country have put us in this postion, and now as a final bad act of their administration, they will apply the Coup de Grâce to the taxpayers.

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