Back at the end of January I jokingly searched for the Patient Zero of the Global Financial crisis.
I put all the blame on "Bob the mill worker from Scranton".
Peter Martin has discovered that Rolling Stone magazine (which while usually being about music often comes out with some excellent news coverage) has done the exercise for real. They lay the blame at Joseph Cassano:
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. This is a company that built a giant fortune across more than a century by betting on safety-conscious policyholders — people who wear seat belts and build houses on high ground — and then blew it all in a year or two by turning their entire balance sheet over to a guy who acted like making huge bets with other people's money would make his dick bigger.
That guy — the Patient Zero of the global economic meltdown — was one Joseph Cassano, the head of a tiny, 400-person unit within the company called AIG Financial Products, or AIGFP. Cassano, a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead, cut his teeth in the Eighties working for Mike Milken, the granddaddy of modern Wall Street debt alchemists. Milken, who pioneered the creative use of junk bonds, relied on messianic genius and a whole array of insider schemes to evade detection while wreaking financial disaster. Cassano, by contrast, was just a greedy little turd with a knack for selective accounting who ran his scam right out in the open, thanks to Washington's deregulation of the Wall Street casino.
The entire article is a fascinating read - as good as anything I've come across on the topic. It lays out the whole sordid business for what it is.
And it shows without doubt that the US legislators - led by Republican Phil Gramm - pretty much guaranteed it would all go to hell when they put forward a Bill to amend the Glass-Stiegal Act, designed to control speculation, that had been around since the Great Depression. The Gramm-Leach-Bliley Act pretty much allowed the banking market to let rip.
The interesting thing of the Global Financial Crisis is how the seeds of this crisis were planted way back in the 1980s and the junk bond market. Junk bonds are bonds put out by small companies with a high interest attached because they are not as safe as other "safe" companies.
Mike Milkin and others bought up these bonds in huge numbers figuring they couldn't all possibly crash. And of course they did.
In this crisis, the banks bundled up junk mortgages together and bought them up in huge numbers thinking they couldn't all possibly crash. And of course they did, and so have we.
What's that saying about those who fail to learn from history being forced to relive it?
Let's hope Obama and Co at the G20 are Rolling Stone readers...