Tuesday, June 16, 2015


...or the AIG case if you prefer.

As I mentioned, I somehow thought that Starr, the investment group headed by Hank Greenberg might win this thing because what actions were taken were, in no place that I could find, authorized by the Federal reserve Act and the testimony presented in the trial was damning to the case of the respondent.  I was therefore hardly surprised as apparently the rest of the world when Hank won.

It is a fascinating situation: the core holding that the Federal Reserve engaged in a clearly unconstitutional act but concluded that there would be no damages for if they hadn't broken the law things would have been worse for the shareholders who wound up with 20% of the corporation with the government getting a 80% "fee" for doing what they shouldn't have done.  Or to put it in language that I have used before, the "Vig" was 80% which in the end amounted to $22 billion dollars that went somewhere (anybody ever ask where?) and a goodly number of bonuses and legal fees were paid out. There have to be guys Up The River and in a dozen of Federal run "vacation facilities" all over the country shaking their heads and asking themselves, "Why the hell couldn't I have thought of that ," rather than dropping a few large on some schlep who couldn't pay his bookie.  But no matter.

Before we get into what this all means we might review what occurred to put it all in a bit of perspective.

Hank Greenberg, the long-time head of AIG, Is Starr, which has the largest holding of AIG stock.  Mr. Greenberg is about 150 years old and has absolutely no need of any recovery that he might have received if damages had been granted, but after a long and distinguished career he does have a great need for a very important recovery...his reputation.  For you see, Mr. Greenberg was AIG; the identification was interchangeable and rightly so as he ruled it like a fiefdom.  For reasons best left explained by a hand far more refined and longer-lasting than mine, he ran afoul of the office of the Insurance Commissioner and the office of Attorney General of the State of New York--mind you, I didn't say the Attorney General; I said the office of the same as that office has continued the charge right up to this point.  Beginning the proceedings was no other than Client ("love potion) #9, as odious a creature who ever disgraced the halls of Albany and that covers a lot of ground.  The State of New York terrified the Board of AIG with threats of criminal prosecutions forcing them to remove Mr. Greenberg fro the Chairmanship.  The successor, was, shall we say, not always crisp when the gun sounded and proved a disaster.  Thank you State of New York.  It was under this watch that the fun started.

I think this background is somewhat important because it establishes somewhat of an understanding as to why events proceeded as they did.  There were no clean hands anywhere along this parade.  And there was a lot of risk out there involving such names as DeutscheBank, Societe General and of course, the omni-present Goldman Sachs, who despite protestations to the contrary that exist until today, were damn near toes up in 2008/2009 but somehow managed to get out of this thing better than anyone else.  I always wonder how they continue to pull that off..........a $billion plus in less-than-fully-disclosed bridge loans to Russia in '97 and they sell a bond issue...multiple billions...ah, why bother.  In any case, the decision was made and as much as anything else, I'm sure Mr. Greenberg brought this case to get the entire story out there.  I'm not sure the great unwashed knows it all but at this stage those who should know do and in that respect he has won and won big.  I hope he doesn't appeal the lack of a monetary award.  Let the dead be buried.

Anyway, in the immediate aftermath starts the speculation of what does this all mean should we face another financial crisis and what will be the role of out institutions?  The name Dodd/Frank has been brought in to the discussion.  Will this paralyze institutions from acting?  Well, yes and no.  The easy one is that Dodd/Frank is indecipherable to any sane person so let's just put it aside and leave the worry of "living wills" and "orderly bankruptcies and receiverships" to the likes of Crazy Lizzy and her mob.  Then let's ask ourselves, "Selves, do we really think that those guys back when the decision was made to bail-out  AIG in the manner which they did were not aware that they were at least on very thin legal ice if not smack in the middle of the pond?"  Hell, read the testimony if you're not sure.  Sometimes they made dumb decisions but dumb they were not.  And sometimes the best advice comes from Rocky Balboa; "Ya gotta do whatcha gotta do."  Been there, done that...

What happens next time around?  In the NY Times today, Andrew Sorkin suggested that the the ruling in Starr might well result in inaction due to fear.  He may be right but for the wrong reasons.  If we had a Federal Reserve--especially in New York which has historically been the center for all things international and capital markets related, staffed by the exceptional and selfless men and women professionals with whom I grew up, there would be no concern.  Alas, we do not.  Nor is there the independent and professional membership in Washington.  Nor is there the independent voice of the regional Feds to be heard.  The system is a sad representation of what it once was, politicized and self-aggrandizing.  These are careerists, not public servants.  "How will this affect me," is always the first question these days.  And yet, I still believe that when the specter reappears--as it most certainly will--there will be enough will in that room where the decision is made  to do what's gotta be done.  But I'm not that positive.

As a final thought, here's a conundrum in all of this.  If what occurred was in fact a clear and gross unconstitutional act--which it was--where is the shock and concern?  Remarkably, the shock seems to be at the decision itself although in an even a cursory reading of the applicable statutes the decision should have been clear-cut.  Not a sound.  It is almost as though everyone is thinking the same thing: God, let this go away, but not for the right reason which is to allow the leeway for our institutions and their leaders to do their jobs under the most difficult of circumstances for the greater good but because there are those who would look for any excuse not to make any decision at all and would simply prefer that there be no discussion such as this we are having.  Sometimes there is no law, no playbook, no history and very little glory in deciding that which has to be decided and done.  Fewer and fewer understand that.  Mores the pity.


  1. Yesterday, in response to the Sorkin piece stating the end of bailouts, wrote poignantly "...the Fed...is Batman. It will break the rules to protect Gotham, no matter what. And that's probably the way we want it deep down."

    1. Read the piece. I think Bruce Wayne died

  2. Should say "Adam Levitin wrote" - sorry Adam.