Category Archives: Economics

Why I Don’t Write About AIG Anymore

So someone asked as to why I am not writing updates about AIG anymore.  The simple answer is, my work is done.  The whole point was to draw attention to AIG, before the financial crisis.  I knew it was rotten and now, so does everyone else.  So I don’t have to write about AIG anymore, the word is out, my work is done and I am pleased to see people are paying more attention to the likes of AIG.

You should not trust this company, be cautious and be careful when dealing with them.  They work for you, not the otherway around.

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The AIG Analysis

Months ago I promised an analysis of the AIG bailout.  Unlike AIG, I didn’t get a bailout and have spent my time, keeping businesses afloat that are the real victims of this financial crisis.  So, that’s why I’m late with this.  There is a lot to this situation but I have made it very simple, after all, AIG employees are going to be reading this, they don’t get anything complex, like derivatives.

 

To really understand the current crisis, you have to way back to the late 90’s.  Back then, the head of what is now Citigroup, had a dream!  His dream was a supermarket style financial services company.  He believed in this dream so much, that he lobbied congress like nobody’s business to change depression era laws that prohibited him from seeing his dream become a reality.  Other financial firms like AIG saw a chance to go from an insurance giant to a financial services giant and joined in the lobbying efforts.  Eventually, both parties signed off on dismantling those laws that prevented this idea from happening.  They said times had changed, we were in no fear of a recession.  After all, it was the dotcom era, people were rich!

 

Of course soon after that, things changed, the bubble burst, Enron, 9/11, etc…  But those “scrappy” financial services firms clung to the idea of this supermarket idea.  AIG grew and grew, it entered areas it had not before, areas it really didn’t understand.  It was 2004 when AIG had to restate its financials, the company that had the tag line “we know money” apparent couldn’t balance its own checkbook.  In 2005 I was looking at the stock and realized, this was a house of cards.  I told my friends, who said I was nuts, but sure enough, I was right.

 

It came as no surprise we had to bail out AIG, they had it coming for a while.  But the fact we are bailing them out is a problem.  See, everyone talks about how FDR brought us out of a recession, fact is, he didn’t.  He prolonged it with his version of the bailouts.  And Bush and Obama are doing the same, prolonging and spreading the pain.

 

AIG is a cancer on our economic system.  Normally you remove it or kill it, when it invades, instead our government feeds it by giving companies like AIG and Citi more money!  Seriously, this is stupid logic, we give money to companies that failed and brought hardship on others who were doing things the right way.  I have no sympathy for AIG, they knew they were screwing up years ago, there is plenty of evidence in the public forum to support that.  If I saw in 2005 with my very limited resources, I’m sure AIG saw it.

 

The fact is, the employees at AIG are getting a comfy deal, we bail them out, and we all lose our jobs while they keep theirs and go on spa retreats.  They are the ones who brought this economic hardship  on us.  These idiots and that’s what they are, lazy, self centered and worthless individuals, should have their personal assets revoked to help pay for this mess.  they created it, they should suffer.  Put them out of a home, they don’t deserve one.  Give them minimum wage until they pay us back.  It’s a joke to say it was only the top management, top management doesn’t do anything but go to meetings all day, the ones who carry out the crimes are the rank and file.  Yeah, the underwriters, the analysts, the brokers, and profit center managers.  Those people knew what they were doing.

 

In the end, they will never pay for what they did, a sign of the corrupt looking out for the corrupt.  But anyone reading this, do us all a favor. NEVER hire anyone from AIG.  Remember, they did this, so why hire someone who would create such a mess, do you want them creating that mess for your company too?  No, so don’t hire anyone from there.  Let them all stay there, contained, then when someone with brains comes along to run this country, we can cut them off like you are suppose to do with cancer.  As long as these people are allowed to do more damage to our economy, damage in some form will continue.  The employees should be punished, every profit center manager, hell, anyone with the title manager.  The only people who shouldn’t are the non-decision makers.  Call center, admin staff, the people that take orders from the managers.  In any big corporation, those people are never the ones at fault, it is the decision makers and decisions are not carried out at the top but at mid level.  Those people, put them on minimum wage, bonus amounts going back to 2004 paid back and put towards the bailout payments.  And then don’t let them quit until the money is paid back, if they want out, they have to work at it.  Everyone else is suffering for their mistakes, why shouldn’t they suffer the most.  It actually is not a lot to ask for when you consider the damage being done to main street because of the greed of these people.  It’s very small indeed.

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Russian President Medvedev on Economics

The new Russian president is blaming the US for the financial melt down we are experiencing. I am not surprised by his rhetoric, after all, the Russians love claiming how bad the US is and how they have a great system (like the part about not allowing opposition voices). Although the Russian president may think he is being smart in his attacks, he is showing us a great misunderstanding of just how the markets are suppose to be working and frankly, shows us why we should not bother investing in Russia.

Here’s what he said “Failure by the biggest financial firms in the world to adequately take risk into account, coupled with the aggressive financial policies of the biggest economy in the world, have led not only to corporate losses.”

Ok, so the biggest firms in the world, yes that’s right, the world, meaning not US, so how is it the US that is to blame when these companies are allowed to do their business globally, in such places as Russia? Fact is, financial firms blew off the US a long time ago, they are “global.” Meaning, they go where the money is with no regard for national interests. The one thing I will say is that the US Fed is acting like it is in control when it is not, we should have let Bear Sterns fail, that’s called capitalism, what we are seeing is corporate welfare which I do not agree with. At the same time, we have an economy based on 70% consumer spending and we let our dollar get weak, which is about as dumb a move as you can make. But that’s impacting the domestic US market, not so much globally.

Here’s another gem from Medvedev “”No matter how big the American market and no matter how strong the American financial system, they are incapable of substituting for global commodity and financial markets.” I’d like to know what this guy is on, because even my basic finance 101 class back in high school, we learned this fact. The US is one market and one market only. Granted, I know quite a few Wall Streeters who don’t always remember this, but I don’t believe this is endemic.

So we know the new president of Russia really doesn’t have a grasp of economics, lets see what else he says. “Russia is now a global player and understands its role in supporting the global community.” I wonder if he means the part about over priced oil and causing the developing world to remain in poverty as a result while Russia becomes flush with cash at the same time. How is that supporting the global community by causing people to fall further into poverty?

Or is Russia helping us by showing us the Neo-Stalinism with their anti opposition practices and limits on investment by foreign companies in Russia? How is that being a global player? Being a global player means competing on equal terms, we invest in your country and you can invest in ours, if we can’t invest in your country meaning buying entire companies without restrictions, then you are not a global player, just a wannabe player.

So, I guess this is the new face of Russia, flush with cash and ego-economics. Yawn, forget the Russian market, with guys like this in charge they will nationalize your assets at a whim. You are better off investing in Canada, at least they play fair and they have oil too.

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The Price of Gas, Europe and the US

I hear a lot of people say we should not complain about the price of gas in the US because in Europe they pay twice as much for gas. I find this argument to be a bit misleading and used to create a false argument for why Americans should pay even more for gas.

Yes the price at the pump is higher in Europe, but the cost of gas itself is not. There are two issues involved, the price of gas and the tax on gas. In the US we have 11% federal, in Europe (France, Germany, Netherlands) you are looking at about 60% for gas taxes. So if the base rate on a gallon of gas is $3.35, the price at the pump in the US is going to be $3.72. In Europe you are looking at about $5.36 for the same gas. The difference is in the taxes.

There is not a price for Europe and price for the US, we all buy our oil on the same global market, so no, Europeans are not actually paying more for gas, they are paying more in taxes. Huge difference in how you look at the fundamentals. Of course there are other factors like local taxes, regulations on emissions, transportation costs, etc…

One thing people don’t realize is the fuel efficiency in Europe is much higher thanks to the lower emission standards on diesel. Yes, that’s right; the Europeans have less stringent standards than the US. Lets take the Honda Fit, which is a diesel version in Europe, it is far more fuel efficient than it’s gas driven American cousin. Same car, a just different engine. So yes, the European is paying more per gallon of gas, but is driving further on that same gallon. If it was not for the higher standards on emissions in the US, the American driver could probably also be driving just as far and being as fuel efficient.

So when people claim Europeans are paying more for gas, remember, they are paying the same, they are just paying more for the taxes on gas and that is what makes the difference in price, not the gas itself.

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Filed under Business, Consumerism, Economics, Energy, Europe, Gas, Life, The World, US