Headline "Bad" News

Honestly folks, I am looking for some great news to circulate. Something that says all is well and the world will wake up to a new dawn. Right now we are just not quite around that corner. No matter, knowledge is power and, well, I seek to empower you. Right now, the place to watch is Asia and China in particular. I know, that was yesterday's news (and what I harped on yesterday), but guess what, it is today's news and tomorrow's news too. The U.S. sneezes and China gets a cold. China gets a cold and the U.S. gets pneumonia. The U.S. gets pneumonia and . . . you get the picture. Anyhoot, here are the latest headlines from Bloomberg:

•American Express Gets Federal Reserve Approval to Be Bank Holding Company
•Asian Stocks Drop as Earnings Outlook Worsens, Business Confidence Slumps
•Las Vegas Sands Halts Macau Construction, Seeks $2.14 Billion of Capital
•Australian Business Confidence Plunges to Record Low on Recession Concern
•China Stocks May Need More Than Stimulus to Lure Investors After 64% Drop
•KKR Financial Suspends Dividend, Borrows $400 Million From Banks, Parent
•Alumina Suspends Wagerup Refinery Expansion, Cites Global Financial Crisis
•Obama Tours White House as Transition Team Weighs Reversing Bush Policies
•Fed Refuses to Identify Recipients of $2 Trillion Emergency Loans to Banks

Not real pretty and the Asia related headlines are picking up speed.

Anti-AIGing Cream

We really need something to stop the constant AIGing of the U.S. taxpayer. Squarely in the good-money-after-bad category is the U.S. upping the AIG ante to $150 billion. Mind you, AIG had already given us a lien on everything up to pencils and staples, so we get no new security from what I have heard. All we really get is a sliver of hope that the enorous amount we already are risking on them will actually get paid. Don't hold your breath.

Those in the insurance business are somewhat giddy at the AIG demise. Not because a competitor is gone but because it did not have the best of reputations among its brethern, you might say. Let's just say they didn't play well with others. So, you ask, why are we saving a company that folks here don't care that much about. That is a much better question when you consider that we are really just saving the holding company, not the insurance subs. The insurance companies are (were) fine (they were regulated by state insurance departments that for the most part did their regulatory jobs). But now the holding company has put them at risk. More a reputational risk than anything else as most seem to share the AIG name. Customers seem to be fleeing a bit, not really caring that the insurance companies are financially sound. All this is making the whole payment of the U.S. loan issue a bit more problematic. Hard to sell those insurance companies when they are losing clients or slashing premiums to save clients. Which is why, of course, we add to the scare more by adding more loans to the pile. This, I think, will work out dandy. But perhaps only for the Berkshire Hathaways of the world who will pick up the pieces. No tears here for AIG.

Back to the question, why save AIG? Well, it turns out that AIG issued hundreds of billions of dollars of credit default swaps ("CDSs") to EU banks. That sounds big, but it is a small part of what was at one time an estimated $62 trillion market. Nonetheless, these CDSs seem a tad more important than most because of the companies that bought them. You see, EU banks can use the CDSs to support their required capital ratios and they bought hundreds of billions of CDSs from AIG. Some of these banks are highly leveraged, suffering from mortgage security woes and many are already on the brink. When AIG had its rating cut, some of their CDS contracts required the posting of collateral, which is what got this train rolling on government loans. AIG needed cash to post as collateral. Yet the government was not really interested in saving a holding company like AIG. So, again, why?

Given that AIG was propping up the capital ratios of dozens of Eupropean banks, its demise would have sent major ripples through Europe and beyond. Moreover, Mr. Ben was reportedly getting calls from EU officials warning of doom and gloom. Something like, Der Bernanke, ze time hast cum fur de Fed to giv ze loans to ze AIG azzs undt avoiden de vorldvide catostrofe. Erstvile ve vill be forced to be makin ze calls to ze big W. Okay, my fake German is a bit off, but you get the picture. Europe sneezes and Bernanke bends over. (One of my better lines I believe)

The National Bank of Craig

I have decided to become a bank and try to get some support from the TARP or any of the other alphabet soup of facilities. Hey, Goldman Sachs did it (with bad consequences to hedge funds) and now American Express is seeking to do it. It seems to be a Constitutional right these days to become a bank. I don't pretend to know what the (unintended) consequences of this will be. When Goldman did it there were new capital ratios it had to meet so lending to hedge funds was curtailed, resulting in hedge funds liqudating assets to meet new margin requirements, which was all on top of sales to meet redemptions (no wonder the markets have not done well). Still, who knows what knock on effect Amex becoming a bank will have to other companies or even Amex card holders. Only time will tell. Yves has more take on this here:

http://www.nakedcapitalism.com/2008/11/does-everybody-get-to-be-bank-now-amex.html

I Sneezed and No One Said Gesundheit

Not asking a lot here, but if you actually read my post today I would appreciate a comment. Perhaps just a shout out. Can you hear me now? All I need to know is that someone is out there. Anyone?
Someone? Bueller? I don't mind writing this as it helps me to clarify my own thinking, but if I have anyone who cares about what I am writing it may inspire me to be a bit more religious about it. I read hours of this stuff every day either way, so you just impact how much I pass on. Your choice.