The Big Takeover – hard hitting Rolling Stone article on bailouts, AIG etc.

There’s a fascinating article in Rolling Stone magazine by Matt Taibi that’s been getting some attention recently.

It’s an in-depth read on the players, the beneficiaries, the losers, the corruption and the cronyism that’s pretty much in the open ever since the financial crisis blew the curtains off. While the article does rival a good romance novel in drama and hyperbole,

The best way to understand the financial crisis is to understand the meltdown at AIG. AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror….

Cassano’s outrageous gamble wouldn’t have been possible had he not had the good fortune to take over AIGFP just as Sen. Phil Gramm — a grinning, laissez-faire ideologue from Texas — had finished engineering the most dramatic deregulation of the financial industry since Emperor Hien Tsung invented paper money in 806 A.D.

it’s also a good primer on CDOs and CDS’s, that dreaded 2-headed hydra that’s belched fire and ruin on the houses of Weill, Morgan, Fuld, Cayne and Schwartz.

The mess Cassano created had its roots in an investment boom fueled in part by a relatively new type of financial instrument called a collateralized-debt obligation. A CDO is like a box full of diced-up assets. They can be anything: mortgages, corporate loans, aircraft loans, credit-card loans, even other CDOs. So as X mortgage holder pays his bill, and Y corporate debtor pays his bill, and Z credit-card debtor pays his bill, money flows into the box.

The key idea behind a CDO is that there will always be at least some money in the box, regardless of how dicey the individual assets inside it are….

Most importantly, the article focuses not on the paltry $165 million (that’s pocket change these days) bonuses in AIG, but on the actual billions, even trillions, of dollars being exchanged between pals and associates in the name of bailouts, TARP etc as part of the urgency of dealing with the crisis.

Link to the full article: The Big Takeover

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