The Big Short_ Inside the Doomsday Machine - Michael Lewis [43]
For a brief moment, Lippmann thought he'd changed the world, all by himself. He had walked into AIG FP and had shown them how Deutsche Bank, along with every other Wall Street firm, was playing them for fools, and they'd understood.
CHAPTER FOUR
How to Harvest a Migrant Worker
They hadn't. Not really. The first person inside AIG FP to awaken to the madness of his firm's behavior, and sound an alarm, was not Tom Fewings, who quickly forgot his meeting with Lippmann, but Gene Park. Park worked in AIG FP's Connecticut office and sat close enough to the credit default swap traders to have a general idea of what they were up to. In mid-2005 he read a front-page story in the Wall Street Journal about the mortgage lender New Century. He noted how high the company's dividend was and wondered if he should buy some of its stock for himself. As he dug into New Century, however, Park saw that they owned all these subprime mortgages--and he could see from their own statements that the quality of these loans was frighteningly poor. Soon after his private investigation of New Century, Park had a phone call from a penniless, jobless old college friend who had been offered several loans from banks to buy a house he couldn't afford. That's when the penny dropped for him: Park had noticed his colleague, Al Frost, announcing credit default swap deals with big Wall Street firms at a new clip. A year before, Frost might have done one billion-dollar deal each month; now he was doing twenty, all of them insuring putatively diversified piles of consumer loans. "We were doing every single deal with every single Wall Street firm, except Citigroup," says one trader. "Citigroup decided it liked the risk, and kept it on their books. We took all the rest." When traders asked Frost why Wall Street was suddenly so eager to do business with AIG, as one put it, "he would explain that they liked us because we could act quickly." Park put two and two together and guessed that the nature of these piles of consumer loans insured by AIG FP was changing, that they contained a lot more subprime mortgages than anyone knew, and that if U.S. homeowners began to default in sharply greater numbers, AIG didn't have anywhere near the capital required to cover the losses. When he brought this up at a meeting, his reward was to be hauled into a separate room by Joe Cassano, who screamed at him that he didn't know what he was talking about.
That Joe Cassano, the boss of AIG FP, was the son of a police officer and had been a political science major at Brooklyn College seems, in retrospect, far less relevant than his need for obedience and total control. He'd spent most of his career, first at Drexel Burnham and then at AIG FP, not as a bond trader but working in the back office. Across AIG FP the view of the boss was remarkably consistent: Cassano was a guy with a crude feel for financial risk but a real talent for bullying people who doubted him. "AIG FP became a dictatorship," says one London trader. "Joe would bully people around. He'd humiliate them and then try to make it up to them by giving them huge amounts of money."
"One day he got me on the phone and was pissed off about a trade that had lost money," says a Connecticut trader. "He said, When you lose money it's my fucking money. Say it. I said, 'What?'
"Say, 'Joe, it's your fucking money'! So I said, 'It's your fucking money, Joe.'"
"The culture changed," says a third trader. "The fear level was so high that when we had these morning meetings, you presented what you did not to upset him. And if you were critical of the organization, all hell would break loose." Says a fourth, "Joe always said, 'This is my company. You work for my company.' He'd see you with a bottle of water. He'd come over and say, 'That's my water.' Lunch was free, but Joe always made you feel he had bought it."