posted on behalf of Cenk Uygur, host of The Young Turks
There is a glitch in the system. Alan Greenspan famously said after the collapse that he had "found a flaw" in his free market ideology. He added, "Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief."
Well now the shock has worn off. And what have we done about it? Absolutely nothing. The flaw Greenspan is referring to is what I call the Cassano loophole in the system. And apparently Greenspan has learned nothing from it because in his testimony this week, he said he did nothing wrong as the Cassanos of the world robbed us blind.
Jospeh Cassano was the head of AIG's Financial Products Unit. They are the ones that made about a trillion dollars worth of bets in credit default swaps. They lost. Except because of the Cassano loophole, they won.
Popular VideoThis young teenage singer was shocked when Keith Urban invited her on stage at his concert. A few moments later, he made her wildest dreams come true.
When they lost the bets, their company was devastated. Completely and utterly bankrput. The failure was so large, it promised to drag down the rest of the global economy with it. This forced the government to step in and cover their losses. So far, the United States taxpayers have put in $182 billion to keep AIG afloat.
So, what happened to Cassano? This was all his idea and his team that brought on this collossal collapse. Well, he was fired! Great, justice served.
Oh, did I forget to mention one thing? He received $35 million in bonuses when he was let go. Can anyone in their right mind explain that? Imagine you bankrupt your company and nearly the entire world economy with it - and they give you a $35 million bonus?
So, how do so-called conservatives explain this? They scream that he had a contract. He had a contract!!! What can we do? We had to honor it, otherwise the whole capitalist system falls apart. You know what happens to your contract if your company goes under? Even if it was through no fault of your own, you lose your contract. The company is bankrupt. There is no more money. Those contracts are null and void. Especially if you're the idiot who caused the bankruptcy in the first place.
Popular VideoThis young teenage singer was shocked when Keith Urban invited her on stage at his concert. A few moments later, he made her wildest dreams come true:
But regular rules don't apply to financial industry executives. They get paid no matter what. And that is the whole problem. You see, Joe Cassano never gave a damn about AIG (let alone the American taxpayer). Why would he care about the company? It's not his money. His money comes in bonuses and salary for making money in the short run. If he took too much risk to make that money and it winds up costing the company later, who cares???
He gets to keep his money, no matter what. His self-interest dictates that he should take excessive risk for excessive rewards. And that's exactly what happened. And that is the Cassano loophole. That's the flaw in the system. The people who run the companies don't own the companies. They are sucking them dry. And killing capitalism in the process.
Free markets need rules. If a football game doesn't have refs and rules, it becomes a killing zone. So, do markets. It becomes anarchy disguised as freedom. Every man for himself.
So, let's go back to Cassano. Did he ever get punished for bankrupting the company? This week the Wall Street Journal reported that prosecutors will likely not charge him with fraud. They are not going to try for clawbacks to get some of the money back. In the end, he gets away scott-free. But it's better than free, he gets to keep all the money he never really made in the first place (all of those trades that he got rewarded for eventually wound up losing a tremendous amount of money--and we had to pay for those losses, even though he kept the money).
No, in the end, Cassano got rewarded. I told you about his $35 million thank you note for robbing the place clean. But how about the original robbery? How much did he make for himself from 2000 to 2008 by gambling with the company's money? Only $280 million.
In the end, he walked away with over $315 million for destroying the company and maybe the whole economy. So, why wouldn't he do it again? Well, next time it won't be him. We're on to him, so he's going to have spend his retirement on his yacht. It'll be someone else. It'll be another Cassano. And we'll fall for it then as well. And Alan Greenspan will be in a state of "shocked disbelief" all over again.