The news that interim AIG CEO Ed Liddy owns about $3 million in Goldman Sachs stock generated the expected outbreak of outrage all day Friday. Simon Johnson pounced most eloquently on the key point:
Have we completely lost our sense of what is and is not a conflict of interest? Have we really built a system in which greed fully overshadows responsibility? Is it not time for a complete rethink of what constitutes acceptable executive behavior?
Absolutely yes -- to all three questions. But I'm not sure why this revelation comes as such a big surprise. No one ever tried to hide the fact that Liddy came straight to his one-dollar-a-year stint at AIG from the board of Goldman Sachs. How much further is he damned for owning stock in Goldman, when he had already been at least indirectly involved in running the company?
I'm also not so sure about the self-dealing critique, which is predicated on the unseemly fact that Goldman was one of the biggest beneficiaries of the AIG bailout. Is that Liddy's fault, or the Treasury's? The whole rationale for bailing out AIG was the idea that if AIG had failed to make good on its counterparty obligations, the ensuing financial chaos would have dwarfed Lehman's destabilization of the global economy. We can argue over whether that is true (I think it was) or we can argue about whether the Treasury should have insisted that counterparties like Goldman-Sachs be forced to take at least a partial "haircut" on what they were owed (I think they should have.) But whatever the merits of the policy, I think it's pretty clear that this wasn't something that Liddy tried to slip by the government's watchdog eyes -- this is what the government wanted him to do.
Which doesn't make it any less of a nasty mess, of course. As has been true of so many of the narratives to emerge from Wall Street's ongoing fiasco, no one comes out looking very good.