A pie in the sky solution for AIG

Jake DeSantis, an AIG executive posted his resignation on the NYT, basically saying that last year he agreed to stay on the job for $1 salary in exchange for which he’d receive a retention bonus.  The company was facing bankruptcy and needed to keep its top talent.  Jake did his job, but when the idea of paying AIG bonuses became so distasteful to us all, bonus recipients were publically vilified by Ed Liddy, AIG’s new CEO--a man Jake had never met.  So Jake decided to give his $750k bonus to charity and walk out.  Jake says he never had anything to do with the credit default swaps that brought down AIG.  That in fact, since ’98 the division he headed made $100 million profit annually for AIG.

According to the NYT and some of the networks, it seems that the real villain at AIG is Joseph J. Cassano, the guy who dreamt up those infamous credit default swaps and then lied about them.  In August 2007  Cassano said that he couldn’t imagine AIG losing one dollar in any swap investment.  We now know that in the last quarter of '08, AIG lost $62 billion.  Cassano had created that division to charge huge premiums to insure the risks of the world (insuring other banks' debts, corporate investments, bonds, real estate deals and subprime mortgages--in all $2.7 trillion in so-called "derivative" contracts).  His brilliant idea made him rich.  He made almost $300 mil during his tenure, which he took with him to retire in nice townhouse in London, far away from the likes of Andrew Cuomo and a possible indictment.

Cassano needed to be stopped, but no one dared.  Back in ’95, when AIG lost its AAA credit rating its CEO Hank Greenberg conveniently retired and Cassano went on to take even more risk.  Some even thought he’d be the new CEO.  But that smart guy Cassano was able to retire, unscathed, last March ‘08.  He left AIG with a $34 million golden parachute and an agreement to earn $1 million per month in "consulting fees" (I wonder if we’re paying those).  Cassano has not been charged with anything, but his AIG Financial Products unit paid $126 million in 2004 to settle federal, criminal and civil allegations of fraud and helping clients falsify financial records.  AIG admitted no wrongdoing.  Ed Liddy, the current CEO has apparently dismantled Cassano's old unit.  Where’s Cassano? Riding his bike all over London, enjoying his retirement, or maybe looking over his shoulder.

But going back to DeSantis and his resignation letter.  A glimpse into Cassano’s unconscionable dealings at AIG makes one feel just a bit sorry for DeSantis.  But since we don’t really know what exactly went on inside AIG, we have no option but assume that every AIG employee has blood on his hands.  The only reason AIG is alive is because taxpayers bailed it out, but after our $400 billion “investment”, we can’t afford to be foolish.  We shouldn’t throw the baby with the bathwater.  We have to allow AIG to get back on its feet and demonizing every AIG exec’s not going to accomplish that.   Yeah, it’s obscene to pay a bonus to those who helped bankrupt AIG, but how realistic is to force every AIG exec to work for $1 per year?  I wonder how many talented and altruistic financial wizards you’ll find at that rate.  A better option is for AIG to immediately dismantle its culture of excess, then ask Mr. Cassano to fork over the $300 mil and with that money pay fair wages for top talent to help right the AIG ship.  That’s the pie in the sky solution.