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Jake DeSantis: Dear AIG, I Quit!
Tweet Share on Facebook March 25, 2009 Comment (296)The best example yet of the perils of the AIG bonus witch hunt:
From The New York Times:
The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G. It ran in The New York Times’s op-ed section.
DEAR Mr. Liddy,
It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:
I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.
After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.
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Jim Chanos On AIG, Or Why We Need Shorts
Tweet Share on Facebook March 24, 2009 Comment (1)Short-seller Jim Chanos warns on CNBC that the immediate response to the collapse and Bear Stearns was a push in Washington to loosen accounting standards, repeating his belief that the push to change mark-to-market rules are simply pleas to "bubble-wrap financial statements."
He writes in the WSJ (sub. req.) today:
We have a sorry history of the banking industry driving statutory and regulatory changes. Now banks want accounting fixes to mask their recklessness. Meanwhile, there has been no acknowledgment of culpability in what top management in these financial institutions did -- despite warnings -- to help bring about the crisis. Theirs is a record of lax risk management, flawed models, reckless lending, and excessively leveraged investment strategies. In the worst instances, they acted with moral indifference, knowing that what they were doing was flawed, but still willing to pocket the fees and accompanying bonuses.
Here's Chanos on CNBC:
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Today's Recession Moment: The Fifth Third Burger
Tweet Share on Facebook March 24, 2009 Comment (3)America, you are awesome. First came the Bacon Explosion, and now the Internet's most gluttonous gastronomes point us to the Fifth Third Burger.
It's being served by the West Michigan Whitecaps (they play at the Fifth Third Ballpark). Here's the scoop via CNBC's SportsBiz:
It's 5/3 lbs (1.66) of beef with lettuce, tomato, salsa, sour cream, chili and Fritos on an eight-inch sesame seed bun.
The team says it feeds one to four people and sells for $20, and if a person finishes the Fifth Third Burger in one sitting, the team will offer up a Fifth Third Burger T-shirt.
So there you have it: A nearly 5,000-calorie monstrosity (mmm.... monstrosity) is named for a bank that lost roughly 90 percent of its value in the last year. My stomach is growling even as my head wants to explode.
Related: For more obscene food goodness, see This is why you're fat.
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Toxic Assets And TARP, Together Again
Tweet Share on Facebook March 23, 2009 CommentGive Tim Geithner credit for his latest shot at fixing the banking system: At least the name is getting more sophisticated.
Six months after Treasury and the Fed rushed through the original $700 billion "Troubled Asset Relief Program" to buy up "toxic assets" held on bank balance sheets, they continue to linger in stagnant, unpriceable pools around the global financial system's backwaters. Today we get new details on the latest plan to fix the problem, but the ideas don't seem to have changed much from the original. Replace "toxic assets" with "legacy assets" and the TARP with the Public-Private Investment Program (PPIP!), and the Treasury Department is essentially repeating the plan it had back when the crisis started, namely buying (or in this case finding buyers) for those toxic loans based on subprime mortgages and other risky assets.
The price? The total public-private partnership starts at $500 billion, and could eventually hit a trillion dollars. The risk? That buyers won't fall in line following the uproar over executive compensation and the AIG bonus tax.
The plan won't be comforting for Americans angry over the (necessarily) cozy relationship between Washington and Wall Street right now. It's ripe for concessions to financial sector. FDIC guarantees and reports that PPIP investors won't be subject to punitive compensation rules are sweeteners. Essentially, the government has to make these assets attractive and then coerce investors to step up. Unfortunately, it has to do so without much leverage to negotiate the best deal for taxpayers. As White House economist Christina Romer said on "Fox News Sunday," buyers of these assets are "kind of doing us a favor."
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Who Will Buy iShares?
Tweet Share on Facebook March 20, 2009 CommentNow that Barclays has said it is shopping its iShares exchange-traded fund business, bets are mounting as to who might be buying.
First, what is iShares really worth? A few initial reports put it somewhere around $7 billion, though that's likely a high (other analysts put it closer to $3 billion). Still, the prospect of a sale does seem to be helping Barclays stock this week. As the FT notes, Barclays shares are up a whopping 45 percent this week even as the bank suffers through reports of a huge tax-dodge scheme, and even more modest valuations for iShares put it at more than a third of the entire bank's value (and one of the easier spots to find much-needed funding).
So who's stepping up to buy? Forbes rounds up some fund and ETF experts and tosses out a few names including Northern Trust, Charles Schwab Corp., and Fidelity, plus BNY-Mellon or Deutsche Bank.
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'Layoff' The Game: The Latest In Recession-Era Time Wasters
Tweet Share on Facebook March 19, 2009 Comment (1)USA Today's Game Hunters points to the latest in depressing online games to help you muddle through this recession. Layoff lets you match up the employees, and send them to the unemployment office to save the corporation money. Only the bankers are exempt! It's sad and fun at the same time!
Bonus: Take another spin around The Bailout Game.
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Citi's Insult: Reverse Stock Splits And Office Renovations
Tweet Share on Facebook March 19, 2009 Comment (10)We've got a new recipient for the John Thain Toilet Award!
Forget your AIG bonus outrage. Today, Citigroup shows that whole "chastened investment banker" meme is basically a lie. According to Bloomberg, Citi gets $45 billion in taxpayer bailout money and decides its chief executive and top lieutenants should spend $10 million on new offices. Crass or stupid? You decide.
As Bob O'Brien puts it at Barron's:
The only takeaway is that these executives don’t seem to understand how unseemly this conduct looks in an era where the taxpayers who are keeping them afloat are too afraid to buy new floormats for their cars because it seems like a discretionary purchase - a no-no for anybody worried they or a family member could be unemployed at any time.
That's not the worst of it. Citi other big announcement is its plan to further punish common shareholders (because $1 a share earlier this year wasn't bad enough). Citi's deal with the government to shift preferred shares into common stock (press release is here) is only going to dilute you again. As for that reverse stock split? Well, the price goes higher, but the value of your stake says the same. Reverse splits are a refuge for companies who simply don't like where their stock is trading.
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Cisco Flips Out
Tweet Share on Facebook March 19, 2009 Comment (1)Somebody was going to buy Pure Digital, maker of the hugely popular Flip Video camera, which has become one of the most exciting consumer gadgets of the past few years. The surprise here is the buyer.
Cisco Systems is paying $590 million in stock for a company where the value is essentially its brand. With more than 2 million Flips sold in North America, the company dominates the field in low-cost hand-held cameras (unless you count cell phones, of course). I've got one, and completely love the tiny camera's less-is-more usability.
The deal puts Cisco in the consumer space with a product that produces a ton of bandwidth-occupying content (which is right in Cisco's wheelhouse). It also signals the latest shift of the company (its recent push into the sever market was touted as a reason for IBM's talks to buy Sun Microsystems).
But you have to ask: Is the Flip's marketing edge (and that's really the only edge it has) worth the price?
A camera with a built-in USB is a great design idea, but what keeps the rest of the consumer electronics world (from Sony to Apple) from barging in on Flip's innovation and Cisco's future profits? -
Fed's Bond Buy Signals Crisis
Tweet Share on Facebook March 18, 2009 Comment (1)Stocks are rallying, bonds are soaring, and your mortgage rate could fall again now that the Federal Reserve has agreed to take on billions worth of new Treasuries and other securities to support the ailing economy.
Don't be fooled: The Fed's decision is a reason to worry.
The decision today to buy $300 billion worth of long-term Treasuries over the next six months and expand existing lending programs by another $750 billion is actually a little scary. Precisely this sort of action was long considered a last-resort arrow in the Fed's quiver. But as the Fed said in its statement, the economy has continued to contract since January. With interest rates close to zero and available options dwindling, the Fed's move simply shows central bankers think the crisis is continuing.
As it has all along, the Fed has said it will act as needed to head off this recession. The question is, are we now finally approaching the point where as-needed becomes if-possible? With this move, the Fed's balance sheet is likely to pass the $2 trillion mark, and at some point the ability of the Fed to pour additional stimulus into the economy will run out.
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AIG Bonuses: 'Distasteful' . . . And Dangerous
Tweet Share on Facebook March 18, 2009 Comment (3)AIG's Edward M. Liddy says he finds AIG's $165 million bonus payout to executive level employees "distasteful." He's right, and now Congress could try and take the money back after placing Liddy's head on a figurative pike today.
Too bad it won't matter if they succeed or not.
Bonuses are simply a sideshow. Anger surrounding the payouts may be legitimate, but it is also a dangerous distraction at a time when there is still simply too much at stake to spend valuable time bashing even the most egregious pay abuses by AIG. That's because the audience Congress needs to be impressing right now isn't the American public. It's actually the people drawing a good bit of all this populist scorn: Big investors.
Here's why: This Thursday, applications for the government's Term Asset-Backed Loan Facility, or the TALF are due. That's the $1 trillion government plan to team up with investors to get lending flowing again.
If those investors look at the AIG scandal and see a partner (the government) that looks both unfriendly and unreliable, the pool of risk-takers willing to lend to consumers and businesses during a time of economic uncertainty could simply decide participating in the government's public-private partnership is too much of a hassle.
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