Hank Greenberg is a worse manager than Rick Wagoner

It is fashionable to pillory bailouts to the automobile industry on the grounds that automobile executives mismanaged their way to bankruptcy.  In that case, throwing good money after bad would only prolong the inevitable (not to mention support Democrat-loving unions).  But as with most things fashionable, this argument is overrated.

The same people who argue that the automobile industry was mismanaged (and therefore run by dumb people) are often the same ones to defend our financial services sector as that which attracts the most dexterous minds.  This was an easy argument to make when financial services were minting money from (fake) profits.  It was also easy to identify auto executives as genius when they raked in huge profits during the 90s.  But once the car companies started entering their slow demise after the 2001 recession, all of a sudden the history of their previous 30 years could be rewritten as one of glaring mismanagement.

Of course, it is now abundantly clear that the vast majority of the financial services industry was also grossly mismanaged.  When each household in America is spending roughly $1,600 to patch up the mistakes of the wizards (Hank Greenberg and his London finance teams), surely that company dangerously misjudged their entire business.  It was clear as early as 2004 that housing was in a bubble; prices in a bubble eventually revert to a long-run pattern of growth; so to base your model off of an assumption that the bubble’s assets will not decline in value is about as stupid as selling inefficient status symbols instead of building quality products (building SUVs instead of Honda Accords).

AIG represents only the most egregious example of the mismanagement of our financial services industry.  As far as I am aware, very few banks have avoided extravagant losses which have pushed them into bankruptcy or at least to its edge.  Were ordinary Americans wrong to take out loans they could not afford? Yes.  Was the SEC myopic in increasing the amount of leverage it permitted?  Without doubt.  But remember, this entire process was being led by the smartest people in the world, the cream of the crop of our young collegiate graduates.  Everyone reaping multiple-zero bonuses had the economy under control, and their models were flawless.  (Though anything will be appear flawless until it breaks when you do not understand how it works.  A Yugo looks like a feat of engineering until you drive it.)  So to lambast any group of executives while defending those who have destroyed our financial system is misguided and exhibits a double-standard.  The collapse of the automobile industry would not send the economy into a great recession, but the collapse of the financial services would and is.  That’s why they were paid so much money in the first place.