Professor Gary Gorton of Yale University served as a consultant for AIG from 1996-2008. Professor Gorton’s job was to devise computer models for AIG to use to gauge the risk in those delightful derivatives — credit-default swaps. The Barometer could have helped on that risk model — betting on whether over-mortgaged Americans were going to default on their mortgages, home-equity lines of credit, second mortgages, and new-home mortgages was a big mistake. The only issue was when they would all default.
AIG ended up with a bailout from the federal government of $185 billion. Where is Professor Gorton now? Well, following a bad few years in which he received death threats and had additional security at Yale for his part in the 2008 financial crisis, Professor Gorton is teaching a finance class at Yale on . . . the 2008 financial crisis. That’s a course that would be fun to audit. When Professor Gorton was queried in a 2011 conference as to whether he might have missed anything in his computer models he said, “I didn’t miss anything.”
Accountability, where is thy sting?