Macro Impact of AIG, et. al.

Nothing profound here, but just to get the ball rolling… Banks - So AIG was carrying around all this paper that they have marked at 1.7 - 2.0x failed Lehman’s marks. The gov’t’s bailout essentially requires them to sell it. As everyone who has bought real estate knows, forced sales are the best of buyer’s markets but almost nobody can buy this crap whether it’s a good deal or not. Tons of other banks are carrying this stuff around (or have used it for collateral or some other nasty thing) and will be on the receiving end of a liquidity problem that is marking their stuff to market. That means we haven’t come close to seeing the end of the bank problem. Insurance Companies - How many other insurance companies have similar operations to AIGFP and are in trouble? These kinds of things never happen in ones, and we are seeing a trickle from other insurance companies. We are in for some serious insurance reform including taking away control from states. Eminent Domain - Despite how frightening a total AIG collapse would be, the gov’t assuming ownership of AIG is a troubling follow-on to the agency bailout. Somehow the gov’t stepped in and fired senior management of a publicly traded insurance company and assumed 80% of the equity without discussing it with the current owners. These “greater good” gov’t interventions make me itch. Hedge Funds - Everyone is blaming hedge funds, but we don’t yet have a major hedge fund blow-up. They are out there, waiting to happen, and AIG sell-off inspired marks may do it. What if an LTCM blow-up happened right now and the gov’t gathered all the investment banks together, oh wait, they can’t do that cause there are no investment banks… Real Estate - Anybody think that this is over yet? If you knocked on the door of 70% of houses in Fairfield County, CT and offered the owner two year’s ago’s appraised value for their house if they would move by Monday, you would get it.

Lol. What’s funny is that about a week and a half ago, I was at lunch with a Senior client at his home. Nice area, lots of old money blah blah blah. I commented that he had a very nice home and he goes to me “Yeah you know the place next door is yours to rip down for $940,000”. In my mind I was like…“Pffff…uh…no”. Willy

“Pfff… uh… right. I only have $3 in my checking account.”

“Pfff, which means I could have your mum and a coffee”. Willy

>>Hedge Funds - >>Everyone is blaming hedge funds, but we don’t yet have a major hedge fund blow-up. Those two funds at BSC blew up last summer due to MBS. Maybe you’re talking about independent HF’s like LTCM was.

I think it’s knee-jerk on the insurance reform bit. You know that most insurance cos have very conservative asset mgt, and they’re not all writing financial guaranty.

>>Insurance Companies - >>How many other insurance companies have similar operations to AIGFP and are in trouble? These kinds of things never happen in ones, and we are seeing a trickle from other insurance companies. We are in for some serious insurance reform including taking away control from states. I suspect a lot of them are based in Bermuda. So much for regulation…

Agreed. AIG’s business model is very different from the other insurance companies.

the eminent domain angle will crush the markets - the shorts and govt win, the longs lose. come to think of it though, the taxpayers may have the last laugh. good for them (me, you, us!) as beautiful as it is to make money off a short, i kinda feel pitiful for the longs right now. most certainly, shorting should be limited to pre-borrowed, confirmed-located shorts. maybe a central lending repository will also be created now?? i just hope they don’t institute the stupid uptick nonsense or throw the baby out