My first job out of college was at AIG, the American International Group. That was before I discovered that I wasn’t a Wall Street type.
AIG is the company that you hear very little about. But it is an insurance giant and one of the world’s largest companies. AIG pretty much owns everything. It is in a very real sense a backstop to Wall Street.
Now AIG is in serious trouble.
As Lehman melts down and Bank of America rushes in to stop the Merrill Lynch domino from falling, AIG is struggling to survive the next 72 hours:
The big insurance company, the American International Group, was seeking a $40 billion bridge loan Sunday night from the Federal Reserve, as it faces a potential downgrade from credit ratings agencies that could spell its doom, a person briefed on the matter said.
Ratings agencies threatened to downgrade the insurance giant’s credit rating by Monday morning, allowing counterparties to withdraw capital from their contracts with the company. One person close to the firm said that if such an event occurred, A.I.G. may survive for only 48 hours to 72 hours.
If AIG fails the wheels will come off of Wall Street. This is serious and we all have reason to worry.
In the midst of all of this, an idiot named Donald Luskin penned an op-ed today in the Washington Post entitled "Quit Doling Out That Bad-Economy Line". What you need to know about this idiot is that he is one of John McCain’s economic advisors. He is peddling the nonsense that all is well; anyone who says otherwise is apparently hyperventilating. The idiot pens:
"It was the worst of times, and it was the worst of times."
I imagine that’s what Charles Dickens would conclude about the current condition of the U.S. economy, based on the relentless drumbeat of pessimism in the media and on the campaign trail. In the past two months, this newspaper alone has written no fewer than nine times, in news stories, columns and op-eds, that key elements of the economy are the worst they’ve been "since the Great Depression." That diagnosis has been applied twice to the housing "slump" and once to the housing "crisis," to the "severe" decline in home prices, to the "spike" in mortgage foreclosures, to the "change" in the mortgage market and the "turmoil" in debt markets, and to the "crisis" or "meltdown" in financial markets.
It’s a virus — and it’s spreading. Do a Google News search for "since the Great Depression," and you come up with more than 4,500 examples of the phrase’s use in just the past month.
But that doesn’t make any of it true. Things today just aren’t that bad. Sure, there are trouble spots in the economy, as the government takeover of mortgage giants Fannie Mae and Freddie Mac, and jitters about Wall Street firm Lehman Brothers, amply demonstrate. And unemployment figures are up a bit, too. None of this, however, is cause for depression — or exaggerated Depression comparisons.
Of course this is politics. So the idiot cuts to the chase:
Patient zero in this epidemic is the Democratic candidate for president. As it would be for any challenger, it’s in his interest to portray the incumbent party’s economic performance in the grimmest possible terms. Barack Obama has frequently used the Depression exaggeration, including during a campaign speech in June, when he said that the "percentage of homes in foreclosure and late mortgage payments is the highest since the Great Depression."
You see, the McCain campaign has to convince you that you are doing great, that your house price is rising, that your mortgage is not behind, that your health insurance is getting cheaper, that the job you just lost really still exists, that the failing banks don’t matter, that the crisis in Wall Street is not a big deal, that the economy has never been better. Drill, baby, drill. They need Americans to ignore reality so that they can continue four more years of a disastrous course in both domestic and foreign policy.
Given the news tonight, I wonder how stupid Mr. Luskin feels right about now.
I’m feeling very sick to my stomach. The company I interviewed with is AIG.
It’s possibly they will survive. They’re trying to unload AIG Auto Insurance and 21st Century Auto Insurance as well as a few other companies they have partial or full ownership in. That’s why they’re trying to get the bridge loan. They’re buying time to get this done ASAP.
I don’t know how stupid Luskin feels, but I know that Brad De Long, one of the finest econobloggers there is, thinks Luskin is the stuidest man alive.
Here’s a link to an interesting book, Mash, that I think may explain some of what you’re seeing:
http://www.amazon.com/exec/obidos/ASIN/0307352897/wamu-20
The interview that was rebroadcast yesterday with Diane Rehm will certainly interest you:
http://wamu.org/programs/dr/08/09/14.php#22880
A big part of the discussion was the way that the human brain is designed to try to convince you that everything is within the bounds of what is “normal” even when it clearly isn’t, and how the divide between people who survive and those who don’t is how quickly they remember that they know what to do in the event that life goes outside of “normal” — and then do it.
What you’re describing correlates with the author’s description of people attempting to get their luggage out of the overhead compartment when their plane has just crashed, or wandering around their WTC cubicles trying to decide what to salvage on the way out.
Robbie, things dont look good for AIG. NY state is apparently trying to waive regulations so they can tap funds from their subsidiaries. It looks like their rating just got downgraded. That’s going to hurt tomorrow.
Jyoti, Luskin’s boss today declared that the fundamentals were strong. I am not sure which country’s economy McCain was talking about, but I am pretty sure it was not the US.
What’s a Wall-Street type?
I mean what are supposed to be the criteria…being a smarty-pant not enough? 😉
jasper, I dont know. I just know I am not one. It’s a different culture working on Wall Street (in my case, it was actually 70 Pine Street). It was not for me.
Mash, the job’s still on the table as of tonight. 🙂
Robbie, I am glad the offer is still on the table. However, my sense is that AIG will be trimming big time and shifting assets all over the place. A lot of employees are going to get screwed as it jettisons holdings. Expect major restructuring (what a great euphemism!) to cover this loan.
Given the gravity of the situation I understand the Fed move to prevent rolling failures, but this is a pretty dangerous precedent for the market I think. I also note that other corporations didnt pony up to save AIG. I am not sure the Fed has any business propping up insurance companies, especially if they are not going to regulate them. Why bailout after the fact, if you dont have any say on how they are run in the first place. That seems like horrendous policy.
I have to wonder why the Fed is shelling out billions to bail out corporate bad behavior when the government could have taken action much earlier to shore up homeowners so we wouldnt be in this mess. If homeowners were on their own because of bad investment choices they made, why are the corporations not on their own for pushing the risk. Why bail out pushers and trash the users. This looks like a recipe to encourage further drug peddling.
Btw, AIG is not the end of it. There’s more to come, and the Fed is playing a losing hand with our money.
After supporting Bush’s economy plan forever…and advocating his own plan to minimize government regulation of the corporation his entire campaign, McCain now wakes up to the facts that the giant corporations were marred with “excessâ€, “greed†and “corruptionâ€â€¦.and he even has the audacity to claim “He’s going to fix itâ€.
F*** you McCain!!
And what does the poll say about the 46% of the voters – they’d rather lose homes, jobs, and watch their retirement money disappear than to vote for an African American?
F*** you all losers too.