AIG CEO Gives Uncle Sam (and Us) the Finger (Financial Services Industry Arrogance Watch)

Tim Duy pointed out this priceless remark from AIG’s new CEO, Robert Benmosch:

Benmosche told employees that he “had the luxury to say to the government, I’m not going to rush to do this. I’m appalled at how much pressure has been put on all of you to just sell it no matter what, because the Fed wants out, or the Treasury wants out. If they want out in a hurry, they shouldn’t have come in in the first place.”

For anyone who followed the rescue, this is a staggering bit of hubris and revisionist history. First, the idea that the government “came in” implies that this was some sort of normal investment process, as opposed to AIG begging the Federal government for a rescue, even though states, not the national government, are the main regulators of insurance business (the AIG Financial Products business was overseen, if you can call it that, by the Office of Thrift Supervision. AIG structured its operation so as to get them as supervisor precisely because they were guaranteed to do next to nothing).

Next, the original deal called for AIG to pay back the money in two years. That inconvenient fact has been airbrushed out of the story Benmosche tells us. AIG made great assurances that the operating units were worth a lot of money and paying back the loans would be no problem. They accepted a high rate of interest give the riskiness of the loans and the desire of the Federal government to keep the heat on AIG. This original deal in theory fit Bagehot’s rule: lend generously, at a penalty rate, against good collateral.

But AIG fooled itself, or maybe just everyone else. Those supposed crown jewels were worth a lot less than AIG thought.Once they had established they would not be permitted to fail, they started retrading the deal. When AIG realized it couldn’t sell some operating units, pronto, suddenly it started complaining the interest rate (I think Libor plus 8 1/2%, forgive me for working from memory) was too high. Oh, and they happened to need more money too, a wee oversight in their initial demand. So the deal was reworked to give them better terms, a bigger commitment, and NOTHING ADDITIONAL was obtained. This was a free concession, a very bad move in deal land.

The government owns 79.9% of AIG. Any private sector owner who had an overwhelming majority interest and got that kind of attitude from a CEO would fire him immediately. But no, we live in a world where arrogant members of the financial services industry engage in looting, dictate terms to the government, and try to rewrite history to make baldfaced lies seem plausible. Why shoudn’t the government pressure AIG? The idea that owners don’t pressure companies (the subtext of this remark) is an absurd misrepresentation. Go talk to the management of any underperforming company owned by a PE or venture capital firm. For the most part, they do not play nice, and would never tolerate Benmoshe’s posturing, and he knows that. He is simply playing the media and the public for fools.

Ah, but that leads to an idea that might be inspired. Steven Feinberg of Cerberus, who is generally known as the biggest SOB one of the most toughminded private equity guys around, is licking his wounds a bit after his Chrysler fiasco. Unfortunately, his interests seem only to be mercenary, but if someone could persuade him to do some public service as a way to burnish his image, he’d be my choice to rein in Benmosche, They are meant for each other.

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25 comments

  1. Anonymous

    Benmosche was featured on Bloomberg much of today where a "real" reporter tracked him down to his Vineyard / Villa in Croatia. Benmosche on a well deserved vacation was tending to his vines where the Bloomberg reporter exclaimed Benmosche's passion… for Croatian wine. (unfortunately none of Bloomberg's video clips nor their news articles reference this – but the anchors made quite a deal of it throughout the day) – I am sure he is a nice fellow but he comes off as an arrogant SOB.

  2. Jesse

    I saw that 'exclusive' Bloomberg piece with Benmosche on television many times today.

    Between Benmosche and Matt Miller's banal and immature remarks, it was a good day to take the dog for a long walk.

  3. Hugh

    Gee, Yves, tell us what you really think. Don't hold back. *g*

    After Paulson's envoy from Goldman Liddy got through making sure Goldman got all of its money out of AIG, the thinking was that any asshat would do to preside over the remains of the wreck. In this regard, Benmosche is an admirable choice. He's getting something like $7 million essentially to have his name put on a door, good work if you can get it, and just about up to his abilities.

  4. Anonymous

    I want Steve Rattner and his team (yes from GM and Chrysler) manage the US Treasury's investment in financial industry…Lot of CEO's will be following Rick Wagoner's way..

  5. Steve R. Barbour

    Go talk to the management of any underperforming company owned by a PE or venture capital firm. For the most part, they do not play nice, and would never tolerate Benmoshe's posturing, and he knows that. He is simply playing the media and the public for fools.

    All true.

    However this misses the amount of intellectual bullshit the American people have swallowed. You see, most American's believe that the US government has no right to pressure companies, period. The old: 'Gotta keep that government out of business or it'll ruin it!'.

    Based on this fundamental premise, it is assumed that if it is the 'government' that provides that kind of pressure it'll somehow make everything worse.

    All of which is entirely ironic, as if American's really believed in free market economics they'd demand that they treat any government entity exactly as a private equity owner would.

  6. "DoctoRx"

    If the events of a year ago were tragedy, now they are farce.

    Doth pride go before a fall- this fall?

    Yves is too modest to mention it, but her recent suggestion that Benmosche went on holiday promptly upon becoming CEO precisely to point out that Liddy was, relatively speaking, a gem, is looking quite insightful.

  7. Anonymous

    I don't understand the surprise over this.

    What have AIG or any of the financials gained by showing any humility ever since the 90s? And what have they ever lost by being arrogant as hell?

    Given the pattern, why would anything change?

    Having said that, they will eventually overplay their hand and events will inevitably overtake them. The tone and outrage even on financial sites is getting to be very shrill (especially towards GS and JPM, which is somewhat unfair, given that all of the companies seem to be run by and employ assholes), and all it's going to take is one idiot to light a match for everything to go nuts.

    My current bet is on PNC, but I guess it could be anyone this time around.

  8. Anonymous

    You really can't make this stuff up, I can hear the LBO media parroting that he has a point.

    Of course he does, he can't possibly be blamed for ruining AIG at this point, he's doing us all a favor by taking the job after all.

    He could show up for work with a hooker and a crack pipe and the powers that be would offer him a light. Just hang around a little longer, please?

    The powers that be are the ones that can't afford another scandal. This guy has got to be laughing his ass off.

    Where is Hank BTW? I thought he was going to buy this giant POS? He's one of the architects, he's probably one of the only people who know how all of the part and pieces fit together.

    At this juncture, it would be very worth our while to hire him, give him a 20% comission on whatever he is able to sell. I would pay him 20 billion to get 80 back, a 50% loss.

    Who can take the other side of that argument? Exactly, you can't, they won.

    The difference between AIG and Madoff? Madoff didn't steal nearly enough.

    bob

  9. tawal

    The US Government can't fully take over AIG as some of its companies are used as CIA front groups, er, heroin traffickers. This guy knows that, that's why he can talk trash all he wants. Go ahead US G liquidate AIG for dimes on the dollar; I thought not. Snoopy will take what he wants.

  10. Anonymous

    Expanding on the AIG madoff comparison-

    Bernie's worst mistake was admitting it was all a giant fraud.

    AIG keeps the illusion up. Bernie could have told the FBI that the money is there, its just not liquid at the moment. Then Turbo Timmie comes in after the bailout of the investors and appoints Bernie's wife and children, who have been so helpful in all of this, to help run the fund until it can be unwound.

    They would each naturally have to be well compensated. Probably 2-3 million a piece.

    Bernie gets hauled in front of congress and reads some PR crap about a liquidity crisis.

    Rule one in banking, you have not lost it until you say you have lost it, in the meantime you are still earning(or looting in this case).

    Idea- Subpoena ALL corporate expense accounts and any discretionary funds at any firm that has federal funds. Expense accounts are/should be reviewed by the auditors and management already. I'm sure they IRS has the authority to pick through them. These fuckers are arrogant enough to still be using them.

    Wait, who would pick up the dinner tab for the senate? They have very expensive taste too, and can't possibly afford to eat well on a civil service salary.

    bob

  11. Captain Teeb

    At least it's a breath of frankness and honesty, however much like putzes it makes the little people out to be.

    Since the Mogambo Guru hasn't weighed in yet, I'll say it:

    Hahahaha, suckers!

  12. Anonymous

    AIG CEO Gives Uncle Sam (and Us) the Finger (Financial Services Industry Arrogance Watch)

    Of course he does – because he can!

    Team "Change" a.k.a. Obumma & Timmy will just bend over and pay and pay and pay forever to keep the rentiers happy and the rest of the population poor!

    While they are bending over for their Lords and Masters they might as well be made to eat a shit sandwich off the floor of the pen to pass away the time between the bailouts and the anal probing for more cash to throw into the abyss.

    Hahahahaha – Americans are so weak!!

  13. DownSouth

    Indeed, it is sometimes not easy to tell whether the King considered himself as God's lieutenant on earth or God as his own lieutenant in heaven. After hearing the account of the disastrous battle of Ramillies, for example, Louis exclaimed: "What! Has God forgotten all I have done for Him?"

    –Peter Schneider, The World of Watteau: 1684-1721

  14. rickstersherpa@msn.com

    The quote cited by Yves is amazing, but I found this quote even more so. With a mind set like this running the company, with Treasury's approval, no wonder we are screwed.

    “It’s time the people in Congress stopped talking about you as the problem, because you’re the solution,” he said. “It’s not your fault, it’s their fault, it’s the regulators’ fault.”

    The Office of Thrift Supervision “fell short” in its oversight of AIG’s credit-default swaps, Scott Polakoff, a former acting director of the regulator told lawmakers at a hearing in March."

    Gee, we pick a weak regulator, make sure they are sandbagged and ignorant, and when it blows up, like a five year old prince playing with matches its not our fault, its the some poor peasant's fault for not stopping us.

  15. Anonymous

    "Idea- Subpoena ALL corporate expense accounts and any discretionary funds at any firm that has federal funds. Expense accounts are/should be reviewed by the auditors and management already."

    Good Luck – at this point most of the American public would still find resonance in the idea that this is "unfair."

    This is what I find most dispiriting about the financial crisis; even after all that has happened, there is still no political capital for reform.

    There is something profoundly comforting to Americans about believing gov't is the problem. Until someone finds an equally functional meme (or the gov't can't keep the safety net functioning) we are in for more of the same.

  16. rd

    Helicopter Ben did what he needed to do in 2008 to prevent meltdown from fear and illiquidity.

    Now we are moving more into an asset quality game. with the stock market up and interest rates still low, it is time to start FDIC'ing these types of companies. We need the Sheila Bairs to be getting more active in dismantling these firms. I am sure that we will lose some money as taxpayers in the short-run, but with attitudes like this in the bailed-out companies we are sure to lose far more in the long run if we keep them functioning as zombies.

  17. Anonymous

    "this is a staggering bit of hubris and revisionist history"

    This comes to a surprise? Bankers and CEOs of the too big to fail know they have Obama in their pocket (think campaign contributions). Why should they care about the taxpayer or why should they show any humility in their dealings with joe six pack? The truth of the matter is that the system has been corrupted and does not function with any level of honesty – starting at the presidential top. My guess is that this does not end well. This guy's comments are the closest thing to "let them eat cake"

  18. Siggy

    Benmoshe's comment is indeed revealing.

    First it was accounting mis-representation, then abrogating side letters and finally CDS that could not be honored. Wow, torts abundent and no referrals to the Justice Department. Wow.

    I wonder what would happen if all of AIG's financial contracts were repudiated? Who is hurt? The parties that bot the contracts, I expect that to be the case. Will the aggreived parties pass their pain on to the larger economy? Maybe, maybe not.

    If I worked for AIG, I would be looking for other employment. I see it as being inevitable that the enterprise will be liquidated without regard to whether a fair price is being obtained or not.

    As to Benmoshe, now that you have a view into his reasoning, would you hire him?

  19. asphaltjesus

    Yves,

    All the moral indignation is worthless.

    The guy is hired to manage a company profitably. There's no ethical component to the pursuit of profit.

    Look what happened to the CEO's of any company that competed against Worldcomm in the bad-old-days. Fired for not beating Worldcomm.

    What's different now?

  20. Dave Raithel

    Where's a gulag when ya really need one?

    I might have written: "Face down in an unmarked grave, a bullet to the back of the head, is too good for some people." But the last time I said that prominently, I had to talk to the Secret Service. Some people have no sense of proportion, ya know….

Comments are closed.