Suicide is painless
It brings on many changes
And I can take or leave it if I please.
-Theme Song from MASH
Shortly after I started my business career, I read an interview with former MASH star Wayne Rogers.
Rogers is a well known investor and his business philosophy was a simple formula:
There are four kinds of deals.
Good deals with good people, which everyone wants. Then there are bad deals, with bad people, which no one wants.
The two other variables are good deals with bad people and bad deals with good people.
Rogers said a bad deal with a good person will succeed because a good person will try to make it right. He said a good deal with a bad person will always fail.
Roger's belief system was one of best pieces of business advice ever given. It is a good rule of thumb for any kind of transaction.
I wish Washington and Wall Street lived by the same values. We wouldn't be knocking on depression's door.
When you look at the continuing bailouts of AIG and Citigroup, the people in Washington don't get it.
They are continuing to make bad deals with bad people.
Citigroup and AIG employ thousands of good people. But they have had rotten apples in leadership.
They created a culture that is probably impossible to change or fix.
Both companies had close relationships with big time politicians. Relationships that meant disaster for the American people.
In the book Fallen, Giant: The Amazing Story of Hank Greenberg And The History of AIG, by Ron Shelp, Shelp talked about AIG's close ties to government officials around the world.
He said, "One of the consequences of AIG's intense political involvement was an odd sense of entitlement."
Shelp said that "AIG shaped the rules to its own interests." And, "On occasion, it flouted the rules."
Shelp said that when questioned, "Greenburg would make his standard reply to almost every criticism, ("You don't understand insurance") and the lawyers and the lobbyists would make the problem go away."
That culture has now created a situation for AIG that the lobbyists and lawyers can't make go away.
The political connections must still be out there. AIG was bailed out a day after Lehman Brothers was allowed to fail.
The Shelp book was a puff piece (if the title wasn't a giveaway, try reading the rest of the book) and described an ugly corporate culture. Imagine what a expose by someone not connected to AIG would look like.
Citigroup had a similar corporate culture. It was well connected. It paid former President Clinton's Treasury Secretary $126 million in bonuses over an 8 year period.
It spent money on outrageous things. In 2007, Todd Thomson, a high ranking Citigroup executive, threw a bunch of underlings off the corporate jet in China so that he could have a private ride back to the United States with CNBC's Maria Bartiromo.
That flight had to be more expensive than the auto makers' flights to visit Congress.
Both AIG and Citigroup have a history of not treating their customers fairly.
Shelp said, "AIG had a notoriously tough claims department that is famous for finding reasons for sending policyholders away empty-handed."
People buy insurance to compensate them for losses like car crashes and house fires. They expect to be treated honesty and fairly.
AIG thought differently.
As bad as it might be for AIG policyholders, it is a lot worse to be a Citigroup credit card holder. Horror stories abound about Citigroup raising card holders' interest rates and using abusive collection practices.
In July 2008, Citigroup paid $18 million to the state of California to settle accusations that it took money from credit card customers' accounts.
A few months later, taxpayers bailed Citigroup out. Then we bailed them out again and bailed them out again.
Citigroup and AIG are bad deals with bad people.
Let's forget about the Wall Street jargon and talk some common sense. Washington and Wall Street keep using terms like "too big to fail" or "systemic risk" as excuses to keep throwing money at Citigroup and AIG.
Instead, we can look at two variables. Are the taxpayer bailouts bad deals? Of course they are. If they were good deals, private investors would be jumping at them and we wouldn't need taxpayer money.
The second thing to ask, are we dealing with good people? There is nothing in their recent history to suggest that are they are good. AIG went on a junket a week after getting bailout money. Citigroup is still sticking it to credit card holders.
The theme song to MASH is called Suicide.
We are on the road to economic suicide if we keep making bad deals with bad people.
Don McNay, CLU, ChFC, MSFS, CSSC is the founder of McNay Settlement Group in Richmond, Kentucky. He is an award winning, syndicated financial columnist and the author of Son of a Son of a Gambler and The Unbridled World of Ernie Fletcher. You can write to him at email@example.com or read other things he has written at www.donmcnay.com
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