Robert Benmosche, CEO of America International Group Inc., made several comments last week that were so stunningly ignorant that it’s difficult to believe he actually said them.
“All of the states where we’re a leader, where we’re the No. 1 insurer, are red states. All of the states where we’re at the bottom are blue states,” Benmosche said last week at a conference in Washington, D.C. “Part of what we found out is that our model is about culture. … And what we find is where there’s more of a tendency for people to be more liberal” and thus look to government for more help is where the company does not perform well.
It’s difficult to believe that someone with such views is the top officer at one of the many American financial institutions that only exists at all because the government bailed it out – something Benmosche and too many of his fellow CEOs in finance pretend never happened.
Benmosche’s words speak volumes about renewed financial industry hubris, a denial of reality and a feeling of invulnerability among executives whose poor judgment can destroy the destiny of so many people.
Benmosche’s focus on a purported link between political affiliations and the propensity to expect a bailout is, of course, misplaced. The real place to look isn’t among homeowners, most of whom have received very little help from government, but rather within the financial sector itself.
Here the difference between the pro- and anti-bailout crowds isn’t a matter of red versus blue. It’s more about size. The proponents and recipients of bailouts include leading bankers such as Hank Paulson, a Republican and former head of Goldman Sachs Group Inc. and U.S. Treasury secretary, and Jamie Dimon, the CEO of JPMorgan Chase & Co., the country’s second-largest banking company, who leans Democrat. The people who tend not to expect bailouts and oppose them run savings banks, credit unions and the smaller hedge funds.
Benmosche is not the only one to insult the taxpayers who saved AIG while holding their noses. Robert Diamond, the head of Barclays Plc, has said banks must be allowed to fail – all the while advocating a business model that is the very essence of disastrous too-big-to-fail banking.
The trouble is, big banks can fail, and more than two years after the financial meltdown, there still is no cross-border resolution mechanism for banks or insurance companies – or anyone else – that would provide for an orderly winding-down of their operations.
Firms such as AIG or Barclays could collapse in the same fashion that Lehman Brothers Holdings Inc. went bankrupt, and cause chaos around the world. No sane government would want that to happen, so contrary to all promises, a bailout will be provided.
One logical step is to break up these big firms in a manner that doesn’t inflict harm on the rest of the economy. This isn’t a left-versus-right issue as Benmosche would have it; it is the financial elite versus the rest of us. •
Simon Johnson is a professor at MIT’s Sloan School of Management and a Bloomberg News columnist.
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