How long can you stay on this tightrope?

Gretchen Morgenson from the NY Times writes in Sunday’s paper about AIG in “Behind Biggest Insurer’s Crisis, A Blind Eye to a Web of Risk“. There are a lot of lessons here, mostly reminders of lessons you’d think were already learned.

There’s a failure of leadership when you look at the practices of AIG’s London office, which has been tossing around hand grenades for years. There’s a failure of corporate governance that allows the small London office’ to ignite the firestorm that brings AIG to the government’s front steps. There’s a flood of extraordinary compensation for the 400 people in the London office averaging more than $1 million each since 2001, a total of more than $3.5 Billion over the last 7 years.

More importantly, the Office of Thrift Supervision in this country has had oversight over AIG’s London Financial Products office for 4 years. According to the article, a handful of those officials were on the premises at the Connecticut branch of the Financial Products division all the time. But the credit default swaps this unit sold, largely insurance products against the failure of covered debt, were not regulated by any state insurance regulators. Throughout most of 2007, however, they AIG maintained that their risk assessments were reliable.

And now? At the end of AIG’s most recent quarter, the London unit’s losses reached $25 Billion.

The underlying theme of unbridled greed and unfettered largesse continues ad nauseum. And we’re going to pay for it – dearly!

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