Quick thoughts about AIG and John Stewart

There is a lot I want to say and it is all fairly inchoate. Maybe this blog will help me grow in my ability to be articulate about the cultural/emotional side of corporate fraud and misdoings as well as the policy wonk stuff.

But I have been watching with interest the AIG blow up over the last few days (mostly via TPM), and am very upset by the Obama administration and Geithner, along with the usual suspects. I had hoped (still hold some hope) that Obama would get on a visceral level some of the "emperor's clothes" aspect of the problems with the modern corporate world, but so far he (through his support of Geithner) is not expressing it. Let me see if I can explain.

John Stewart's interview with Jim Cramer struck such a chord, because Stewart finally articulated the essence of what has been so wrong for so long. He said "you all knew. You knew." (I am writing this from memory, and yes, too lazy to check a transcript.) Every scandal the people at the center play dumb. "How could anyone have known?" But they just can't be. Not down deep in the recesses of their brain. Their justification for their existence rests on a fundamental cognitive dissonance: they are important and smart and better, but they do not bear commensurate responsibility.

It is the same at root as the auditor's "expectations gap" (which I am sure I will rant about lots in the future). Auditors all know, because they are more sophisticated than you or me, that they are simultaneously critical to the functioning of the capital markets but not responsible for finding fraud. It has been a hundred year headache that they can't get through the public's thick skill that it is unfair to expect anything of one's auditors.

Similarly, AIG executives are the best and the brightest and AIG cannot contribute to the wellbeing of the American economy without these particular people, and it is impossible to find people this good for anything south of several million a year. BUT how could they possibly be expected to understand systemic risk? Or think about the possibility of house prices falling? How could they--anyone--ever have known?

The rest of us work very hard for much less. And a big chunk of what we work hard for goes to pay these people their fees. We pay in our 401 k plans, we pay in bank fees and mortgage rate. We pay and pay and pay. And now we are paying in our taxes too.

And yet, since we don't grant them their full due, we are unsophisticated. I think that using attitudes towards corporate executives as a measure of sophistication is what is deadly and is the trap that Obama and particularly Geithner are falling into. And why this blog has the title it does. Until Obama in no uncertain terms is able to come out and say, these people are silly piggish crooks, no matter their nice manners, he is going to fail to reign in the oligarchs. (I wish I were half as articulate as Simon Johnson on this matter.)