This appeared in Thursday's Washington Post:
The tale of insurance giant AIG's rise and fall, which Post reporters Robert O'Harrow Jr., Brady Dennis and Bob Woodward laid out in gripping detail this week, is a cautionary one. AIG, once the largest and most profitable insurance company in the world, failed last year, prompting a federal intervention that has cost $152 billion so far.
The company landed in the taxpayers' lap because of its exposure to credit-default swaps, or CDSs, which are essentially contracts to pay customers if their investments in other securities go sour. Like other financial derivatives, CDSs can help investors hedge their bets, thus improving the liquidity and efficiency of financial markets. But, when sold as insurance for shaky underlying assets, such as securities backed by subprime mortgages, CDSs can increase rather than reduce systemic risk. AIG sold $80 billion worth of subprime-related credit-default swaps on Wall Street between 1998 and 2005 when it concluded that the business was too dicey and got out.
By then, however, it was too late. The company thought it would be protected against potential losses in the CDS business because of its AAA rating from Wall Street credit agencies. But it lost that seal of approval, thanks in part to market concerns about the 2005 resignation of chairman and chief executive Maurice "Hank" Greenberg amid a New York state investigation of other company practices. As a result, AIG had to post collateral to back up its CDSs, and, in September, when the company could not come up with enough cash, the Federal Reserve and the Treasury had to step in, lest its giant web of credit-default swaps collapse and bring the world economy down with it.
In hindsight, it is clear that government regulation was lacking in the early stages of AIG's credit-default swaps boom. As they were building it, AIG executives regarded their CDS business as virtually risk-free "like catastrophe insurance for events that would never happen," according to the Post series. This something-for-nothing aspect of the business should have been a red flag for the government and for the ratings agencies, too. Yet another lesson of the AIG saga is the sheer difficulty of comprehending the myriad pathways of modern finance. The trick in regulating financial derivatives will be to preserve their efficiency-enhancing attributes while eliminating those factors that tend to concentrate systemic risk where it cannot be easily detected. AIG built up its credit-default swaps business in the interstices of governmental authority; those gaps can and should be closed without choking the arteries of capitalism.
Terminated
This editorial appeared in Friday's Los Angeles Times:
Well, thank goodness. "The Terminator" has been selected for the National Film Registry and will be preserved forever. Keep your Oscars and your Golden Globes; the film that introduced Arnold Schwarzenegger in his signature role will be safe in climate-controlled Library of Congress vaults long after "Shakespeare in Love" and "Mrs. Miniver" are dust.
But what's the point of storing the first flick in the series for posterity while allowing the sequels to rot? The registry had the good sense in the '90s to keep not just "The Godfather" but "The Godfather: Part II" (and perhaps the equally good sense to let "Godfather: Part III" fend for itself against the elements). So, likewise, shouldn't we try to safeguard "Terminator 2: Judgment Day"? That way, the cyborgs that peruse our archives after our civilization has vanished will learn to utter not simply "I'll be back" but the equally immortal "Hasta la vista, baby."
Plus, they'll learn something of our politics. We've preserved a president (Ronald Reagan in "Knute Rockne All American"), a mayor (Clint Eastwood in "Unforgiven") and now a governor. Although it's curious that the Library of Congress so far has not chosen "Predator," and so has missed out on the chance to get two governors (Schwarzenegger and Jesse Ventura) for the price of one. Nor has it properly considered "This is the Army," starring future U.S. Sen. George Murphy, or "The Hunt for Red October," with future U.S. Sen. Fred Thompson.
The registry this week also decided to preserve 24 other films, including "Deliverance," a nice movie about a weekend camping trip, and "In Cold Blood," which apparently is some kind of prequel to "Capote" and "Infamous."
One particularly noteworthy selection announced Tuesday was "A Face in the Crowd," a pre-Mayberry Andy Griffith classic about folksy con artist Lonesome Rhodes, plucked from obscurity, made into a TV celebrity by adoring fans, and apparently well on his way to political power before the common people overheard what he really thought of them: that they were a flock of sheep.
"They're mine. I own 'em. They think like I do. Only they're more stupid than I am, so I gotta think for 'em."
Not as easy to remember as "I'll be back," perhaps, but somehow all the more important to not forget.
