The Prosecutors Go After AIG, But It’s Only A Symptom

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In a NYT Op-Ed today, Eliot Spitzer, Frank Partnoy and William Black suggest that a public email dump on the part of AIG should take place in order to assess the company’s culpability and that of its trading partners in the near collapse of the financial system.

I hold no opinion one way or the other with regard to Partnoy or Black but I find it very difficult to read anything authored by Spitzer without proceeding on the assumption that there is a hidden personal agenda. In many respects his Tiger Wood’s type dalliances and subsequent debasement probably saved him from being judged on the sorry track record he amassed as a prosecutor.

But back to the point. Here is how the authors characterize the events surrounding AIG:

A.I.G. was at the center of the web of bad business judgments, opaque financial derivatives, failed economics and questionable political relationships that set off the economic cataclysm of the past two years. When A.I.G.’s financial products division collapsed — ultimately requiring a federal bailout of $180 billion — those who had been prospering from A.I.G.’s schemes scurried for taxpayer cover. Yet, more than a year after the rescue began, crucial questions remain unanswered. Who knew what, and when? Who benefited, and by exactly how much? Would A.I.G.’s counterparties have failed without taxpayer support?

Come on guys. AIG and its rescue were admittedly messes but to suggest that it represents the epicenter of the collapse of the universe over the past two years is hyperbole taken beyond hyperbole. Yes, it was an important player in the spider web of interlocking interests. No, it did not cause the implosion of the financial system or the decimation of the American worker. There are myriad reasons for the failures and AIG is more a bit player than a causal entity.

It’s worth noting that the authors are all lawyers and prosecutors by occupation or inclination. Their training and instincts lead them to identify and pursue tangible entities upon which blame can be levied. They are not inclined to recognize the subtleties and interconnectedness of the institutions and individuals that led to the current state of affairs. Such an approach is impossible to adjudicate, not to mention render above the fold verdicts.

When we do indeed move honestly move beyond the need to find neat, simple individuals and institutions to blame for this debacle, then we will in fact be on the road towards a meaningful assessment of what happened and how to prevent its recurrence. The process that brought us to this sad state of affairs is complex and has many abettors. AIG is only one of them. Prosecutorial fixation on that company will not lead to a deeper understanding of how to proceed from here.

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