AIG and the DC Beltway Fiddle Section
While Rome burned it was reported that Nero fiddled.
In our current credit and banking firestorm we have an entire string section fiddling in Washington.
Several months ago I listed my thoughts for action to help alleviate the problems that had paralyzed the American economy. No genius here, but a lot of life experience to call upon. One of the first things I thought needed was to review the Mark to Market system being used in valuing loans related to housing. Almost everyone I knew involved in mortgage lending and building houses thought this was a major contributor to the housing and banking crises.
This Mark to Market falls within the purview of the Federal Accounting Standard Board (FASB) The FASB announced that they planned to review this accounting standard sometime between April and June. Talk about fiddling! These are obviously aliens from the same planet as some of our current leadership in congress. Under pressure the FASB has now announced they plan to consider the situation in the next three weeks. Should we now feel relieved that they consider this three week time frame as a spring into action. Who the members of the FASB are and how they get to be such a major factor in the life of Americans is a question for another day . There are other current questions needing serious review.
Why is AIG too big to fail has been a puzzling question for months. A few weeks ago I called a long time friend and financial guru and asked him why we were continuously lavishing funds on AIG. Did somebody have photos?
He calmly answered that the photo answer would be more easily understood. He said his guess was that our bailout of AIG was being done for International reasons. AIG sold Credit Default Swaps which in short were a form of derivative that was sold and resold by financial players in this “game”. The exposure of foreign banks was a big part of the Default Swap activity and our backing of AIG was in large part to maintain international confidence in the American financial system. I didn’t dismiss my friends explanation but shoved it into the recesses with other items that are beyond easy understanding
Today if was revealed in the NY Times that large amounts of bail out funds given to AIG were used to reimburse Deutsche Bank(German) and Societe Generale (French).
My friend called this shot weeks ago. Apparently the financial press figured it out in the last few days. Would Bernanki or Geitner ever have shared this with us?
Transparency is obviously a word that has hidden meanings to those in the current administration. They have gained control with a populist appeal but reveal only those items that enhance that populist support. Details of the use of our money are obviously thought to have a need to be hidden from the unwashed masses who could never possibly understand those details.
A last thought for Monday.—-Lawrence Summer is Obama’s Chief Economic Adviser. During his administration at Harvard their endowment lost roughly between $15 and $20 Billion. Yes that’s with a “B”. I hope Larry has improved his economic skill set since he left Harvard.
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