Archive for October 12th, 2008

AIG knew of potential problems in valuing derivative contracts long before it became a crisis…

Sunday, October 12th, 2008

First few paragraphs from the WSJ, original article.  I say we create a new form of punishment for executives at bailout targets who failed to act to avoid the crises: they have to work at Wal-Mart or Target for 3 years at minimum wage, stocking shelves and have to live on the wages they make. Perhaps that would teach them to think about the average person who puts trust in them.

"Top officials at American International Group Inc. knew of potential problems in valuing derivative contracts long before these risky transactions caused the insurer’s shareholders severe pain, according to documents released by congressional investigators.

The disclosures come as prospects dimmed this past week for AIG’s efforts to quickly sell assets to repay its bulging debt to the government. The derivative-contract problems would have driven AIG into bankruptcy; in the past month, the government has made available to AIG nearly $123 billion in a rescue plan.

A federal criminal probe under way since earlier this year is also looking at how candid company executives were with investors at a December 2007 investor conference and whether executives at AIG’s financial-products unit, which sold derivatives contracts, misled AIG’s outside auditor last fall."

Here’s the Sequoia Capital Presentation I referenced in my last post

Sunday, October 12th, 2008

I realized I could just embed it, rather than provide the link…

A great slide show which summarizes how big a hole we’re in and how long it may take to get out of it…in short, it’s big and it’s going to take a long time.

Sunday, October 12th, 2008

My friend Whitey turned me on to this Sequioa Capital deck that summarizes why we’re in the dilemma we’re in and why it’s worse than other dilemmas, and why it’s going to take a while to get out of it.

You can see the slideshow here:

The deck highlights what I think is the big issue for this recession, one which the media (not surprisingly) doesn’t seem to be highlighting: e.g. that consumer credit is used up,  consumer mortgage equity withdrawals are now exhausted, and consumers (on average) have no household savings.  So, if our economy depends upon consumer spending–and it does–where is future consumer disposable income going to come from to fuel the next upturn, esp. if oil prices don’t fall below $80 a barrel or so (and it can’t if oil companies are going to fund their deep sea/tar sands drilling, which is very expensive and is only profitable if oil prices stay above $80 a barrel or so)?

If anyone has some good theories on how we dig ourselves out of this hole, I’d love to hear them.