Is it really true that only the AIG employees who made the mess at AIG can clean up the mess at AIG? That doesn’t sound right to me. And Simon Johnson has his doubts as well:
Simon Johnson, a former chief economist at the International Monetary Fund, has pointed out that in financial crises, bankers often exaggerate the difficulty of cleaning up their mess. They do so partly to justify their own continued importance and also to fight off calls for a government takeover of banks. In reality, Mr. Johnson says, the mechanics of cleaning up hobbled banks turned out to be fairly straightforward during other recent crises, like the Asian one in the ’90s.
I’m not sure the situation is exactly the same, since my understanding is that AIG wrote more “custom” products. At the same time, it’s clear that the incentives point in favor of dissembling about their own indispensability. And at the end of the day, while we have no real way of knowing whether Matt Yglesias or Duncan Black or Simon Johnson would do a good job of handling CDS contracts for AIG, we know for a fact that the people currently in those jobs haven’t done well. What’s more, surely it would be possible to rehire or retain a few AIGsters to help out if that became necessary without paying out lavish bonuses. In general, we’re in the midst of a buyer’s market for paid employment.