The man who crashed the world

Joseph Cassano, former head of A.I.G.’s Financial Products unit, at London’s High Street Kensington subway station in June. Photo courtesy Vanity Fair
Joseph Cassano, former head of A.I.G.’s Financial Products unit, at London’s High Street Kensington subway station in June. Photo courtesy Vanity Fair

Almost a year after A.I.G.’s collapse, despite a tidal wave of outrage, there still has been no clear explanation of what toppled the U.S. insurance giant. Michael Lewis, writing in Vanity Fair, decides to ask the people involved— the silent, shell-shocked traders of the A.I.G. Financial Products unit—and finds that the story may have a villain, whose reign of terror over 400 employees brought the company, the U.S. economy, and the global financial system to their knees.

Six months ago, Lewis received a phone call from a man named Jake DeSantis at A.I.G. Financial Products — the infamous unit of the doomed insurance company, staffed by expensively educated, highly paid traders, whose financial ineptitude is widely suspected of costing the U.S. taxpayer $182.5 billion and counting.

At the time A.I.G. F.P.’s losses were reported, it became known that a handful of traders in this curious unit had sold trillions of dollars of credit-default swaps (essentially unregulated insurance policies) on piles of U.S. subprime mortgages, but its employees hadn’t yet become the leading examples of Wall Street greed. And so this was before Jake DeSantis and his colleagues found themselves suburban-Connecticut outcasts, before their first death threats, before the House of Representatives passed a bill because of them (taxing 90 percent of their large bonuses), before New York attorney general Andrew Cuomo announced he was going after their paychecks.

DeSantis turned out to be a friend of a friend. He’d called Lewis because he didn’t know anyone else “in the media.” As a type he was instantly recognizable: a ‘quaint’  numbers guy who was allowed to take financial risks because of his superior math skills, but who had no taste for company politics or public exposure.

As it turned out, the people who lost the most when A.I.G. F.P. went down were the employees of A.I.G. F.P.: DeSantis himself had just watched more than half of what he’d made over the previous nine years vanish. The incentive system at A.I.G. F.P., created in the mid-1990s, wasn’t the short-term-oriented racket that helped doom the Wall Street investment bank as we knew it. It was the very system that U.S. Treasury secretary Timothy Geithner, among others, had proposed as a solution to the problem of Wall Street pay.

How then did it all go belly up for people like DeSantis, his colleagues, Bear Stearns and their ilk? The Vanity Fair feature is one of the rare, articulate, humane examinations on this whole affair and is worth the half hour or so it will take to read.

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