Michael Lewis on AIG, by Arnold Kling

Compelling, as usual. I'll post some excerpts below the fold, but I recommend reading Lewis' whole piece.

Lewis writes it very much as a suits-vs.-geeks story. He portrays the head of AIG financial products, Joseph Cassano, as a suit who did not listen to the warnings of the geeks until it was too late. In fact, I worry that because Lewis' sources are geeks, his story may be one-sided.

One small quibble is that Lewis does not want to get into the details of structured finance. He talks very loosely about "risks" being passed around, and he makes it sound as if AIG was taking on all the risk, leaving everyone else risk-free. I think that's an exaggeration.

Also, it is noteworthy that AIG backed out of the market late in 2005. Lewis says that the suckers who came in to take AIG's place were Wall Street firms. But one should not overlook Freddie Mac and Fannie Mae, which had lost market share in 2004 and 2005, but which jumped in big time in 2006 and 2007.

What Lewis hints at, but does not spell out clearly enough in my opinion, is that the "AIG bailout" did not benefit AIG nearly as much as it benefited Goldman Sachs and other large financial firms, foreign and domestic, who are not necessarily deserving recipients.