Back in March, CEO Edward Liddy faced congressional outrage over the payment of bonuses worth hundreds of millions to the same people widely seen as responsible for the company's ruination – the infamous financial products division whose risky credit default swap transactions threatened to swallow up its parent company when they went sour.
Liddy termed those payments "distasteful" back then, though he insisted he was contractually obligated to pay them.
About a week later, Jake DeSantis, who worked for AIG Financial Products (AIGFP), sent his letter of resignation to the company and the world through its publishing in The New York Times. In it, DeSantis wrote of being unfairly vilified by Congress and the media and of feeling betrayed by a company he had invested most of his time and efforts trying to restore.
He and his co-workers weren't the greedy, short-sighted snake oil salesmen everyone assumed them to be, he insisted.
But if DeSantis and all those like him in the company weren't to blame for AIG's collapse, who was?
As CBS News reported on in March (and followed up on in April), Joe Cassano, the former head of AIGFP, is being eyed as a key culprit who oversaw the company's risky and ultimately damaging transactions.
In the August edition of Vanity Fair, Michael Lewis delves deeper into Cassano's role and offers a compelling glimpse behind the scenes of a division that for years generated seemingly endless profits based on sound risk analysis.
In 2001, Cassano took the reins of AIGFP – a branch of the company that essentially insured Wall Street firms against the risk they assumed in loans. Unlike his predecessors, Cassano didn't have as sound a grasp on the technical, mathematical aspects of the business and didn't want to spend time debating them.
As Lewis writes:
Across AIGFP the view of the boss was remarkably consistent: a guy with a crude feel for financial risk but a real talent for bullying people who doubted him.
According to Lewis, sources within the company paint Cassano as a dictator who demanded subservience from his workers and an executive who couldn't fathom the business he ran ever losing its remarkable success.
But soon enough, AIGFP's business began to change as they started to insure more and more consumer loans like credit cards, student loans and mortgages. There were no problems initially and most people involved thought AIG's risk was low – all the loans couldn't possibly go into default at the same time, the logic went.
That changed when subprime mortgages increasingly began creeping into AIG's credit default swap portfolio, the equation changed. But, according to Lewis, Cassano was either unable to recognize that or unwilling to listen to the growing number of cautionary voices warning him of their now-unsustainable risk.
Subprime mortages grew around 90 percent of the division's credit default swaps – a figure apparently no one was aware of, even the people who worked on the transactions.
According to Lewis, Cassano had also changed the terms of AIG's relationship with Wall Street. It would begin offering collateral if certain triggers were set off, like AIG's bond rating dropping from AAA to AA, which it did. They would also offer cash to banks if the credit default swaps they sold them decreased in value.
That happened in a major way when the subprime crisis exploded – sending banks rushing to A.I.G. for cash they wouldn't have had without the $182.5 billion from taxpayers.
As many opportunities as there were to avoid catastrophe – on the part of executives and lawmakers alike – Lewis concludes that "Joe Cassano was the perfect man for these times — as responsible for a series of disastrous trades as a person in a big company can be."