As they discuss the imminent collapse of Lehman Brothers, Flowers turns to Paulson and says, “By the way, have you been watching A.I.G.?”The G20 in London was a stunning success. This one less so. Significantly, less so. Why? Becuase not enough progress has been made on managing financial risk going forward. Or, to put it another way:
“Why, what’s wrong at A.I.G.?”
“Well, you should take a look at this.” Flowers handed Paulson a spreadsheet he had received from A.I.G.
“Oh, my God,” gasps Paulson and the rest is history.
A future Hank Paulson is less likely to intone ‘oh, my God.’ But I wouldn’t bet the cash in a sock at the back of your wardrobe against it.