A Crisis of Confidence: Economic Homeland Insecurity!

Last week’s flight of fancy began with a math quiz. For several weeks my focus has been the pending Presidential Election, and various aspects, personalities, or positions promoted by the two campaigns. This past week however, has produced a veritable buffet of American TV screen crawl disasters, which prompted my shift in focus for today.

We saw the devastation that relentless forces of nature can unleash as hurricanes buffeted the Gulf States. We observed the catastrophic horror precipitated by the crash of commuter and freight trains in Chatsworth, California, outside Los Angeles. While these events wrought a trail of human casualties, and property loss, it almost certain the triple play of cataclysmic economic collapses of the last three days garnered at least as much attention.

On Sunday evening we learned that Bank of America agreed to purchase the Merrill Lynch brokerage firm for 50 B, as in Billion, dollars. Monday, Lehman Brothers, a banking and financial services firm, filed for Chapter 11 bankruptcy protection. The company cited bank debt of $613 billion, $155 billion in bond debt, and $639 billion in assets. The action made Lehman’s the largest bankruptcy in history. The Three Act Economic Tragedy culminated yesterday when the Federal Reserve Bank announced an $85-billion Federal Reserve loan to mega-firm, American International Group, Inc. (AIG), in exchange for 79.9% of its shares.

The sub-prime mortgage lending market has cast a long shadow across the landscape of the U.S. Economy for months, spurring tightening money markets. Monday, the Dow saw its worst day since September 2001, in the wake of 9-11. Home prices are falling; unemployment is rising. I think we can safely say the R word now, and no I do not mean Republican. A number of so-called experts have quibbled about whether we are in a recession. Yes, yes, a thousand times yes, already!

Americans of all stripes are challenged to keep score as the financial markets reel and sway under the weight of waves of relentless and stifling uncertainty. We are besieged by a terror as clear and present as that fostered by Gustav, Hanna, or Ike. The recent financial storms born on Wall Street have rained down fear (about our future), and blown the winds of economic distress throughout America's Main Streets.

I would posit, aside from the truly financially savvy, most people never heard of, or at least never paid any attention to, AIG. If that is true, indeed, ignorance was bliss. Yes, the company has had a series of TV commercials, but in the age of TiVo and DVR, who watches commercials?

For the record, AIG is a major insurance company, with offices around the world. Founded in 1919 in Shanghai by Cornelius Vander Starr, AIG is headquartered in New York City. The company’s UK Offices are located in London, the Continental Europe operations are based in Paris, and its Asian Headquarters is in Hong Kong. Beginning to get the picture? AIG, a global conglomerate, became a component of the Dow Jones Industrial Average in 2004, and was cited by Forbes in 2008 as being the 18th largest company in the world.

Just 3 days ago, the feds opted not to bail out Lehman Brothers after a weekend- long effort by the bank to persuade the Government to do just that. So why save AIG?

For starters AIG is in a league of its own. Government officials decided they had to act, lest the nation's largest insurer file bankruptcy. Such a move would roil world markets since AIG has 1.1 T, as in trillion, dollars in assets, and 74 million clients in 130 countries. Plus, AIG's insurance businesses make so much money they could conceivably pay off the cost of the bailout within a few years.

AIG is far and away the largest insurer in the world. A quick search of any sampling of mutual funds or any S&P 500 index fund is likely to show the inclusion of the Company’s stock. AIG is a staple in 401k’s, and has been singly responsible for deflating the Dow more than 400 points this year.

In other words a comparison with Lehman Brothers reveals there is no comparison. Officials deemed AIG a company “too big to fail.” Indeed, had AIG gone under, the repercussions would have been not just monumental, but global. The U.S. simply could not afford to let that happen.

Now somewhere, embedded beneath the surface, there is a moral about greed; the overwhelming catalyst for the sub-prime mortgage lending market crisis. Having planted that seed, I will spare you the sermon about the massive amount of corporate welfare used to erase the mistakes brought on by greed, both individual and corporate.

But you know…don’t you? So next time you hear some self-righteous politico haranguing, high-mindedly about the ills and perils of safety net programs, I won’t have to tell you what to think. After all it’s as simple as ABC; make that AIG! I’m done; holla back!

Read my blog anytime by clicking the link: http://thesphinxofcharlotte.blogspot.com. A new post is published each Wednesday.


http://en.wikipedia.org/wiki/Merrill_Lynch

http://en.wikipedia.org/wiki/Lehman_Brothers

http://en.wikipedia.org/wiki/American_International_Group

http://money.cnn.com/2008/09/16/news/companies/AIG/index.htm?cnn=yes

http://money.cnn.com/2008/09/16/news/companies/aig_questions/index.htm

http://www.time.com/time/business/article/0,8599,1841699,00.html

http://money.cnn.com/2008/09/16/news/companies/barclays_lehman.ap/index.htm

http://www.msnbc.msn.com/id/21134540/vp/26743902#26743902

http://money.cnn.com/2008/09/15/news/companies/why_bear_not_lehman/index.htm

http://www.msnbc.msn.com/id/26746909/

http://www.msnbc.msn.com/id/21134540/vp/26735472#26735472

http://www.charlotteobserver.com/100/story/197093.html

http://www.nytimes.com/2008/09/15/business/15merrill.html?_r=1&scp=5&sq=merrill%20lynch&st=cse&oref=slogin

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/16/AR2008091602877.html

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/16/AR2008091600883.html