That AIG Financial Products trader who resigned — and stridently refused to return his million dollar bonus — in yesterday’s New York Times, apparently gave some notice. Yesterday, in latest installment of the Wall Street Ends Its Contrite Silence trend we highlighted yesterday, the Wall Street Journal reports, he showed up for work to a standing ovation! And conspicuously not sitting out the ovation was AIG FP president Gerry Pasciucco. Wow it is just like that scene in Dead Poet’s Society!
A less inspiring trend DeSantis’ resignation highlights is this: AIG is hemorrhaging executives as fast as it is money, and if the company is to be believed the losses will cost the system hundreds of billions more dollars. In fact, the loss of two Paris-based executives, James Shephard and Mauro Gabriele, could trigger nearly a quarter trillion dollars in defaults. Say that again?
Essentially AIG “insured” senior “tranches” of assets (like real estate, etc.) for banks against the risk of default, enabling the banks to use those assets as collateral to borrow way more money than they would have under European banking regulations. (This business is, according to the Journal one notable area in which AIG Financial Products’ business hasn’t imploded.) But it could, unless the company replaces the two executives to the “satisfaction” of French regulators, because if said regulators decide to take the appointments into their own hands, that would, under the terms of the banks’ contracts with AIG, constitute a “change of control” that would allow the banks a way out of the contracts, and contract law is stronger than gravity.
Unfortunately, AIG Financial Products famously underpriced pretty much all their derivatives by the dictates of models hatched by mathematicians who had never actually read any of the contracts, which is they are now owned by taxpayers.
Who now can only hope Gerry Pasciucco stops cheering on the exodus from his division of the company long enough to convince two derivatives geeks to move to Paris.
That may be easier said than done, if the “populist fury” thing bothers finance guys as much as they say. (The Journal reports rumors today that AIG offspring are being harassed at school!.) They hold executives hostage in France, you know. (On the plus side, geeks, that usually only happens to CEOs at companies that make things and employ people.)