In a recent discussion in City Journal on the HBO movie “Too Big to Fail” I wonder how the producers missed the chance to explain why AIG imploded:
As a Wall Street veteran, including stints at AIG, S&P and briefly, Lehman, I felt that “Inside Job” was overly simplistic, and that both films missed the boat big time on AIG.
The story started a few years earlier, when Spitzer ousted AIG CEO Hank Greenberg, which caused stock analysts to downgrade the company immediately, necessitating a scramble to increase reserves. Everyone on Wall Street knew that without Greenberg AIG was a Leviathan without a head. The gambling spree in the credit default business proved this.
Unlike his successors, Greenberg always knew where every position and dime was, every minute, and would not hesitate to get out of any business that threatened its financial integrity.
I’m not defending the company’s ethics, before or after Greenberg, but I do think ordinary Americans would feel less helpless if they had a more complete picture of the events.
But having spent most of my career trying to educate the average American about finances, I must report that they just don’t want to know. If someone else is getting 30% annual returns, they want it, too. The hardest thing is defending a conservative investment strategy to the greedy investor, who will just take his money elsewhere for better returns, damn the risks.
These movies do nothing to encourage citizens to take responsibility for their own actions. It’s easier to keep blaming the “big swinging dicks” and feel bitter and victimized. If everyone had to read the text book for the Series 7 Securities exam — not even take the test, just read it — the financial crisis wouldn’t have happened.
I have lots of friends with Ivy graduate degrees who were stunned, absolutely shocked that their stocks weren’t guaranteed investments, despite signing prospectuses.
Both films ended by delivering the grim news that the financial crisis further consolidated the banking industry and made its leaders richer than ever. This is all true enough. But I wonder why American high school students learn so much about sex — pro or con — but few graduate knowing the difference between a stock and a bond?
http://www.city-journal.org/2011/eon0525ngjm.html
