Morning:
6°c
The man who broke the banks from his Mayfair office
Jonathan Prynn12 Mar 2009
A team of "rogue traders" based in Mayfair was today blamed for triggering the financial meltdown that led to the global recession.
The traders at the London branch of AIG Financial Products, led by veteran American trader Joseph Cassano, accumulated losses of $500billion (£360billion) dealing in worthless "toxic" debts, it was claimed.
Their Mayfair office in the heart of London's hedge fund district has been dubbed the "ground zero" of the world economic downturn.
An investigation by America's ABC News found that the traders were caught with monumental losses that threatened the entire world banking system when the US housing market collapsed in 2007 and last year.
Investigative journalist Peter Koenig told ABC's Good Morning America: "AIG Financial Products was the core, the hottest point of the global financial crisis, it was the epicentre."
He said AIG Financial Products "found a crack in the system that was unregulated" and used it to make huge profits during the boom years.
The black hole, equivalent to the annual GDPs of Hungary and Denmark put together, has already forced the US government to pour more than $170 billion into AIG, the world's biggest insurers, to keep it afloat.
Without it, AIG would have collapsed, threatening the entire global financial system.
The fall-out from the losses is thought to have contributed to the collapse in share prices of British banks, which has led to two, Lloyds Banking Group and RBS, having to be largely nationalised.
The small team, thought to number no more than a few dozen traders, was based at the fifth floor at One Curzon Street, Mayfair's "hedge fund alley," an address that became known within AIG as "the casino in London".
The head of the team, Mr Cassano, received $280million (£203million) in salary and bonuses over his eight years in charge until his resignation in March last year.
This was equivalent to 30p in every £1 of profit made by the division up to the credit crunch implosion.
Mr Cassano, who is 54 today, divided his time between a company town house behind Harrods and his family home in Connecticut.
The son of a Brooklyn policeman negotiated a $1million a month consulting contract when he left and is thought to be still living in London.
ABC News reported that its investigation found the team had taken huge bets on complex financial instruments called credit default swaps used to insure US mortgages and other debts.
Mr Koenig said: "For about a decade it went OK. And then when the US housing market fell out instead they suddenly realised that they had to come up with half a trillion dollars and all they had was a couple of million."
The losses are so catastrophic that AIG warned the US Treasury Department last month that without an extra $30 billion of federal support it would collapse.
The Serious Fraud Office launched an investigation into AIG's London losses a month ago.
Today a spokesman said: "Our investigation is ongoing."
AIG was led by Essex-born chief executive Martin Sullivan, who was forced to step down in June last year and received a pay-off of $25.4million (£18.5million) including $322,000 (£234,000) for use of a corporate jet and $153,000 (£111,000) for use of a car and parking.
Reader views (18)
Did the financiers earn massive amounts of money over the last 15 years, tremendous amounts of money?
>> YES
Were they wrong? have they used wrong models and took risks at wrong prices?
>>YES
Did they benefit from these mistakes? did those very stupid errors make them each richer?
>>YES, previous years' fat bonuses
Did the huge losses resulting from these mistakes cause the financial crisis and trigger the acute economic one?
>> YES
Did millions suffer as a result of these mistakes? Did millions of hard working people loose their pensions, jobs, savings, houses and even dreams, because of the turmoil the Financiers' mistakes have created?
>>> YES
Did the governments across the globe use the taxpayers' money and compromise the lifestyle of many future generations to save the banks and the financial institutions and keep them open and alive?
>>> YES
Did that help the majority of those investment bankers and financial engineers keep their jobs and positions?
>>> YES
Does anyone challenge any of the above YESes? If not, then why didn't those same financiers accept to let go for one year, just one single year without a bonus? How difficult was it to accept that in the worst financial year for a generation those very rich and error-prone bankers would not get any bonuses?
What happened may at best be explained by greed and stupidity. That they got paid as much (60% of 2007 levels), even at the most in-the-red firms (AIG, MERRIL, RBS), takes greed and stupidity to absurd level
- Matcs, London, UK, 22/03/2009 01:34
Report abuse
DC - wrong mate - dead wrong - these guys are criminals - ignorance is absolutely no defence and hiding behind stupid trading decsisions is weak. What on earth were these idots doing trading what was effectively an insurance business - the funds should have been in dumb and slow investments not leveraged derivative instruments. Insurnace, along with confidence is the backbone to capitalism - these guys committed crimes by putting the insurance company at risk.
- Fc, Wellington NZ, 17/03/2009 02:44
Report abuse
This the same story first published in the NY Times on September 28 last year, written by Gretchen Morgenson. It's taken ABC and the Standard a long time to catch up! See http://www.nytimes.com/2008/09/28/business/28melt.html?_r=1&scp=1&sq=gretchen%20morgenson%20aig%209/28/08&st=cse
- Simon Wadleigh, Apollo Beach, FL, USA, 14/03/2009 01:10
Report abuse
There is real crime; and business.
Real crime: is where the Governments punish the criminals, and then asset strip them of all their ill-gotten-gains; like the Mafia; or Bank robbers and drug dealers etc; these real criminals call their crimes business etc; but the government does not.
The Governments sell off the criminal’s houses and cars, and all money found in Bank accounts etc; these ceased assets go to the Government etc.
Criminals would argue that the Government is living off immoral earnings; but the Government would reply that they are making sure criminals do not profit from their crimes etc.
Business is different: Business doesn’t consider anything that they do is criminal; and Governments tend to agree with them; they even go to banquets with them; and many even go on holiday with each other; or share their hotels and even private islands with them; they are really just good friends; helping the economy to flourish.
The difference between real criminals and business can be summed up very easily, and categorized by a clear demarcation line; one has all its assets ceased; and the other has all its assets backed by the tax payer.
It may sound complicated to the layman; but the Lawyers and the Government understand it all.
- Mickyinlondon, london, 13/03/2009 09:42
Report abuse
Stupidity is not a crime - these guys were just stupid traders, and their risk control teams were equally poor...and the regulators were asleep at the wheel. If you want to prosecute the stupid people in the world it would be a never ending task - and legislators and governments are equally capable of stupidity! And whilst I have sympathy for people who lost their life savings because of RBS or Lloyds, their loss is also down to their own stupidity in putting all their life savings in the fortunes of one company and one asset class. An investment of just £8 to read the weekend edition of a quality financial newspaper for 4 weeks would have given them all the knowledge and wisdom they needed to avoid such a disaster- even if they'd forgotten their mother's advice not to put all their eggs in one basket
- Dc, Belfast, 13/03/2009 09:03
Report abuse
These "rouge traders" should be locked up and the keys thrown away but of course that won't happen because they are friends of Nu Labour and the bankers.
- Aggi, Amritsar, India, 12/03/2009 22:42
Report abuse
Nothing surprises me these days with regard to banking, they have brought this country to it's knees, created a massive reccesion and depression, still they live like lords instead of lavishing in jail for the destruction they have caused.
- Annie, Devon, 12/03/2009 21:32
Report abuse
Gordon Brown has caused enormous losses and gargantuan problems for England.Hewill leave a mess that will take a generation to sort out.I only hope that one
day he will be brought to book.
- William Isaac, London England, 12/03/2009 21:21
Report abuse
Gordon Brown says the recession started in America. Are you saying it started here under the regulatory system that Gordon Brown created. Are you saying he is culpable?
- Tom Moncrieff, london, 12/03/2009 18:00
Report abuse
The amounts of money lost and severance are obscene. They are divorced from reality.
- Nick, Norwich UK, 12/03/2009 17:58
Report abuse
I can't help but admire these characters. They've stolen away the wealth of entire nations and got away Scot-free.
I once tried to nick a copy of the first Sex Pistols album from Our Price, got assaulted by a security guard and threatened with court. And they phoned my mum. Still, that was the 70's.
- Paul, Boston, UK, 12/03/2009 16:49
Report abuse
Am I reading the right? Joseph Cassano 'led the team that ran up $500bn losses' and then 'negotiated a $1million a month consulting contract when he left and is thought to be still living in London'!!
It obviously pays well! These loses are 10 times bigger than Madoff's scheme which effectively was another Ponzi scam just by another name.
- Raj, Birmingham, 12/03/2009 16:46
Report abuse
Well done FSA for keeping an eye on the London office of AIG.I am sure that the bonuses that your staff are about to receive are well earned...........or perhaps not.
- Adrian, London, 12/03/2009 16:32
Report abuse
What can you say about disgusting pieces of dirt like Cassano? No concern for his fellow man and woman - those who have worked hard their whole lives just to see their pension savings disappear down a sink-hole. No concern for those who invested a deposit on their new dream home for themselves and their families. No concern for the sleepless nights that millions are undergoing because of lost jobs and poor financial situations. Cassano ought to be taken out and dealt with in the same way as China deals with those who are involved in major financial fraud. (I won't detail it, but it involves a one-way walk.) The bank heads who collaborated should be dealt with the same way. Instead of that, these fraudsters are all out jet-setting and retired in mansions. China has found that its penalties for major fraud are quite effective in deterring others. It's about time the Western World imposed some proper penalties on those who have recklessly caused so much pain to others.
- Phil Jones, London UK, 12/03/2009 16:30
Report abuse
All Madoff did was rip-off a few clever folk who did not look about enough. These AIG guys have caused the world to stumble with all the human misery that will follow. Can they not be brought to account?
- John Problem, Hackney Wick, London, UK, 12/03/2009 16:28
Report abuse
its a shame we are a civilised society - its times like this you think the romans and the coliseum would go down a treat - feed a few criminals to the lions as a mass spectator sport.
Ah well - actually could we not just bring the "stocks" back for a summer festival - that would release some tension from the growning public resentment.
Come on Boris - stick some stocks in Trafalgar Square. Tesco's or ANother big store can donate rotten fruit and we can have a fine old time!!!
- Jc, W6, 12/03/2009 16:25
Report abuse
Nonsense! they could never have done anything if banks and loans were correctly regulated and managed.
- Sallyr, London, UK, 12/03/2009 16:23
Report abuse
Have you not heard of the expression "caveat emptor" Mr Prynn? It is the idiots who bought or lent money on the the toxic debt who are to blame for the banks' and therefore our woes. They have got away scot free with millions in bonuses while savers and pensioners, businesses and borrowers are badly suffering.
- John, London, 12/03/2009 16:16
Report abuse
