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Hullabaloo


Thursday, October 30, 2008

 
Maybe The Dog Ate It All

by tristero

Being essentially a craftsman by trade - ie, someone who makes stuff with his hands (and a few computers) - I often find the world of Big Money a deeply strange place. A.I.G., for example:
The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all along, hidden by irregular accounting.

“You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz.
Well, yes, that's what I would have thought. But here's the thing: Why is this being brought up now? Isn't, "Where the hell did that $120,000,000,000 go?" like, you know, a question you ask before you agree to a loan and write 'em a check?

Then there's this:
Mr. Vickery and other analysts are examining the company’s disclosures for clues that the cushion was threadbare and that company officials knew they had major losses months before the bailout.

Tantalizing support for this argument comes from what appears to have been a behind-the-scenes clash at the company over how to value some of its derivatives contracts. An accountant brought in by the company because of an earlier scandal was pushed to the sidelines on this issue, and the company’s outside auditor, PricewaterhouseCoopers, warned of a material weakness months before the government bailout.

The internal auditor resigned and is now in seclusion, according to a former colleague.
WTF? Seclusion? Since when do auditors go into seclusion? I thought only great authors did that. Has anyone bothered to check this guy's bank account? Seems to me that $120,000,000,000 could buy a feller one heckuva lot of seclusion.

But we go on:
A.I.G. has declined to provide a detailed account of how it has used the Fed’s money.
Oh, really? An internal auditor who resigns, goes into seclusion, and a replacement who won't provide details, when asked, on how the new loans are being used? Something smell a little strange here? Y'think?

Now, to be fair, "The company said it could not provide more information ahead of its quarterly report, expected next week, the first under new management." Even so, one would think they would have these figures available on demand for those of us - American taxpayers - who are fronting them the cash. But let's press on:
The Fed releases a weekly figure, most recently showing that $90 billion of the $123 billion available has been drawn down.

A.I.G. has outlined only broad categories: some is being used to shore up its securities-lending program, some to make good on its guaranteed investment contracts, some to pay for day-to-day operations and — of perhaps greatest interest to watchdogs — tens of billions of dollars to post collateral with other financial institutions, as required by A.I.G.’s many derivatives contracts.

No information has been supplied yet about who these counterparties are, how much collateral they have received or what additional tripwires may require even more collateral if the housing market continues to slide.
Now, to a financial dunderhead like myself, the phrase "what additional tripwires may require" sounds like trashtalk for, "GIMME MORE MONEY NOW, SUCKERS!"

And so it goes. If you read on, you'll encounter a bewildering array of alarmingly high numbers that, as far as I can tell (admittedly, not far), really don't add up. And then::
The swap contracts are of great interest because they are at the heart of the insurer’s near collapse and even A.I.G. does not know how much could be needed to support them.
"...even A.I.G. does not know how much could be needed to support them." This doesn't surprise me in the least.

But wait! There's more:
When the expert tried to revise A.I.G.’s method for measuring its swaps, he said that Mr. Cassano told him, “I have deliberately excluded you from the valuation because I was concerned that you would pollute the process.”
Whoa.

I can't help but think these loans and bailouts are nothing but turbo-charged financial suction pumps that are slurping up as much cash as the rubes - you and me - are prepared to leave lying around for the slurping.

The article ends:
“We may be better off in the long run letting the losses be realized and letting the people who took the risk bear the loss,” said Bill Bergman, senior equity analyst at the market research company Morningstar.
If he keeps saying things like that, Bill Bergman may have to join that "internal auditor" in seclusion. Sounds to me like there are a lot of people making out like bandits here who will not take kindly to that kind of talk.

UPDATE: Looks like A.I.G. isn't, by far, the only bunch of creeps hoovering up the simoleons at an obscene rate.


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