Ron Amundson’s Political Blog

Its probably old news by now, but a confidential memo from AIG likely to the treasury was leaked a few hours ago. What an absolute mess… For reference, the memo is located at:

Apart from the obvious outrage the memo’s content will create, I’m wondering what on earth motivated someone to leak it. Granted, there is a semblance of justice, ie burning all of AIG’s political capital might be a form of payback from a disgruntled client, investor, or employee. And yes, I fully believe, this leak will serve to burn capital in such a way, that AIG will not exist in its present form, or perhaps at all. The average Joe is not versed in finance, global economics, or insurance such that virtually no argument could be presented which he would buy into. To further fund them at this point would be the end of a politicians career I’m afraid. By the same token, to let the market solve it is not really an answer either. No doubt this is the last thing the treasury needed, but it will force them to make decisive and difficult calls in a short time period. In that regard, its sort of a good thing, otherwise we could figure on AIG returning in another 30-60 days for the next few years asking for another $30 billion, until there was no political capital left, at least this way Washington will be forced to make a call.

Its an interesting read for sure, albeit egads, if this is the best Wall Street can come up with, I think they need to get their MBA’s from a different school of thought. Both in the situation they are in, but also in its presentation. Its borderline extortion, and I think runs a pretty fine line towards whether the execs stay free or in jail. Someone must have been asleep at the wheel.

The other thing is, assuming the memo is correct, the linkages are not that strong, or should I say, no where near as strong as the automaker world. By the same token, the whole mess is just too intertwined to be viable anymore. Dis-assembly will be a tricky deal indeed, with an unlit path consisting of sheer drop-offs on either side. Yet, I think that really is the only option available, govt seizure, and chapter 11 reorg, and with it, significant collateral damage. Its too bad the proposed commodities laws had not yet been passed. The ability to stagger CDS redemptions would have been a great tool to have at hand. As it is, their will be a ton of juggling. I guess the one positive, is the govt will find they are ill-equipped to handle this dismantling, and as such may go a bit slow in the automaker domain, as they have their hands full. Unlike manufacturing, where once tooling is gone, the jig is up, finance and insurance can rebuild, its just a transfer of wealth, albeit the casino side of finance will evaporate, and I think that’s something which would have happened sooner or later anyhow.

The saddest part of this, is all the employees who will be affected, the human aspect is going to be the rough part, and sadly, the govt doesn’t have the ducks in a row to deal with the massive unemployment that will result, whether it be in the time it takes to file chapter 11, or during the actual unwinding process. That, and protection against executive pillage need to be where he focus lies…. Its going to be a rough road for sure.