Spitzer as AIG Culprit

When a commission probes the economic meltdown, Michael Lewis' Vanity Fair piece "The Man Who Crashed the World" will serve as a rough draft of what went wrong at AIG and started the financial landslide.

In chronicling how the company built a tower of risk that tumbled around Wall Street's ears, Lewis in passing reveals the role of Eliot Spitzer, then New York Attorney General, in enabling it all.

Lewis' close questioning of "the silent, shell-shocked traders of the AIG Financial Products unit...finds that the story may have a villain, whose reign of terror over 400 employees brought the company, the US economy, and the global financial system to their knees"--Joe Cassano, a hard-charging but relatively unsophisticated former back-room operator who drove credit default swaps to perilous heights.

When he got the job in 2001, Cassano was a pale imitation of the despotic CEO Hank Greenberg, who built AIG into an insurance powerhouse over 37 years, earning a AAA credit rating for prudence to go along with his aggressive tactics.

AIG FP’s employees, Lewis writes, "suspect that the only reason Greenberg promoted Cassano was that he saw in him a pale imitation of his own tyrannical self and felt he could control him. 'So long as Greenberg was there, it worked,' says one trader, 'because he watched everything Joe did.'"

But then in 2005 along came Spitzer, in his own relentless drive to build the reputation that led to his election as New York governor, to hound Greenberg out of AIG while treating Warren Buffet, whose General Re subsidiary was involved in the same questionable deals, with extreme deference.

After that, Lewis reports, "as one trader puts it, 'the new guys running AIG had no idea.' They thought the money machine ran on its own, and Cassano did nothing to discourage the view. By 2005, AIG FP was indeed, in effect, his company."

In building his own reputation as a white knight, Eliot Spitzer, later forced to resign for failings of his own, seems to have been instrumental in starting the avalanche that threatened to bury us all.