It’s easier to slip a weak story past your editors when the subject is leading the news, it’s almost universally condemned, and said editors are scrambling to please their bosses who are screaming at them for stories.
Why else would Newsweek run this incredibly thin piece by Michael Hirsh alleging that AIG’s core insurance business may be a “house of cards”?
Remember, the part of AIG that’s in the news and that was a leading actor in causing the financial meltdown was its Financial Products division, which was sort of a 400-person hedge fund that placed bets with the value created by the 110,000-person insurance company. The Financial Products people are the ones getting the bonuses everyone’s (besides Andrew Ross Sorkin and Evan Newmark) raging about.
Now, I have no special insight into the health of AIG’s massive insurance business—I’ve had no truck with them. And I think it’s something the financial press needs to examine very closely.
But when it does, it should talk to more than one source, which is all reporter Michael Hirsh does here. Amazing.
Hirsh implies that he has done more reporting:
But I suspect that—with apologies to a famous American patriot—we have not yet begun to get outraged. At least if some of the insurance experts I’ve been talking to are correct.
But I only see one “expert” quoted here, and the piece is mostly a forum for this one person’s views. Who’s the expert? A former Mississippi insurance examiner named Thomas Gober, who has consulted for the feds. Not exactly an inside guy.
Thomas Gober, a former Mississippi state insurance examiner who has tracked fraud in the industry for 23 years and served previously as a consultant to the FBI and the Department of Justice, says he believes AIG’s supposedly solvent insurance business may be at least as troubled as its reckless financial-products unit. Far from being “healthy,” as state insurance regulators, ratings agencies and other experts have repeatedly described the insurance side, Gober calls it “a house of cards.” Citing numerous documents he has obtained from state insurance regulators and obscure data buried in AIG’s own 300-page annual reports, Gober argues that AIG’s 71 interlocking domestic U.S. insurance subsidiaries are in hock to each other to an astonishing degree.
Newsweek and Hirsh give an AIG spokesman a chance to bat this down, but it’s followed by this:
But if Gober is right, the implications are almost too awful to contemplate.
And this close:
Fed chairman Bernanke told lawmakers in early March that AIG “exploited a huge gap in the regulatory system” and was essentially a hedge fund attached to a “large and stable insurance company.” But is that really an accurate description? Huge regulatory gaps also exist in insurance. “There is no federal insurance regulator,” according to a senior government banking official, only individual state agencies. Are we missing something really big here? If so, there might be another terrible reckoning to come.
I mean, really. This is just poor journalism. You can’t just go around (especially in the middle of a financial panic) yelling that the theater is going to fall down in the middle of a show because one dude says so—even though the building inspectors (and most everybody else) say otherwise.
There’s no evidence Hirsh has performed his own look at AIG’s books here. He appears just to take the former Mississippi insurance examiner’s word that it’s a “house of cards.” No, the weasel words “might” and “at least if” and “I suspect” do not cut it.
This is a heavy allegation to level at a company at any time, much less when it’s teetering. You just can’t do it with one source. Maybe Gobel is right, but it doesn’t pass the sniff test, and it sure doesn’t pass the bulletproofing test.
What’s going on up there at Newsweek?
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.