They say that starting a new job is one of life's most stressing events -- and if you're Barack Obama and you're taking the helm of the United States as the world teeters on the edge of financial catastrophe? Gallows humor. Lots of it. From CBSNews.com:
By most accounts, this past week was one of the most difficult in the young presidency of Barack Obama. At the heart of it all was the public upheaval over $165 million in bonuses paid to employees of AIG, a company largely responsible for bringing the world's financial system to its knees and now being propped up by U.S. taxpayers. The bonuses touched off a cultural war between Wall Street and Main Street, both of whose support the president needs to help stabilize the economy.
After campaigning in California to drum up support for his $3.6 trillion budget, the president sat down with 60 Minutes in the Oval Office for a conversation about the AIG debacle, the economy, and getting the hang of the world's most difficult job.
Part I:
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Part II:
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Sunday, March 22, 2009
60 Minutes talks with President Obama about the economy, AIG and settling into his new job
How AIG became "too big to fail"
With the rising populist anger over growing bail-outs -- especially of international insurer AIG -- Time magazine has a cover story on why the company became "too big to fail." From the article:
The reason AIG has cost taxpayers $170 billion — and the reason the Obama Administration seemed willing, at least at first, to hold its nose and accede to bonuses for the company's managers — is that it's too big to fail. It's an often heard phrase, but what does it really mean?
The idea is that in a global economy so tightly linked that problems in the U.S. real estate market can help bring down Icelandic banks and Asian manufacturers, AIG sits at some of the critical switch points. Its failure, so the fear goes, would set off chains of others, rattling around the globe in short order.
Although some critics say the fear is overblown and the world economy could absorb the blow, no one seems particularly keen on testing that approach....
AIG says it has written more than 81 million life-insurance policies, with a face value of $1.9 trillion. It covers roughly 180,000 small businesses and other corporate entities, which employ approximately 106 million people. That makes AIG America's largest life and health insurer; second largest in property and casualty.
Through its aircraft-leasing subsidiary, AIG owns more than 950 airline jets. Just for good measure, AIG is a huge provider of insurance to U.S. municipalities, pension funds and other public and private bodies through guaranteed investment contracts and other products that protect participants in 401(k) plans...
Keeping the financial system fluid might explain why so many banks got paid in full, which strikes some as a scandal way bigger than the bonus payouts. Many experts wondered why AIG paid 100 cents on the dollar.
Among the biggest beneficiaries of the AIG pass-through, at $12.9 billion, was Goldman Sachs, the investment-banking house that has been the single largest supplier of financial talent to the government. Critics have been quick to note — and not favorably — the almost uncanny influence of former Goldman executives...
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Tuesday, March 17, 2009
The issue of mortgage fraud vs. AIG bonuses
Back in the mid 1990s, I worked for a short time at SunAmerica, which was absorbed by AIG in 1999, and remember working for a rather detailed executive who is now an EVP at AIG. He had this rather peculiar habit of insisting that each piece of paper, whether it was a fax, snail mail, email, report or any other variety of correspondence be placed in a colored plastic folder. Should an errant piece of paper find its way into the wrong folder, there'd be hell to pay! So of course I've been wondering through this AIG meltdown, "Why didn't he or someone else apply this obsession with minutiae to, you know, the products they sold such as credit default swaps?"
And yet in the DC Examiner, the editorial page opines that mortgage fraud is such a growing cancer on the national stage that going after AIG bonuses is really nothing more than a political sideshow. From the editorial:
Many cancers become untreatable once they metastasize - spread throughout the human body. Something not unlike that appears to be happening in the mortgage industry even as President Barack Obama is off chasing AIG executive bonuses he deems as excessive.
To see what is wrong with this picture, one need look no further than the latest data from the Mortgage Bankers Association on mortgage delinquencies, covering the fourth quarter of 2008. Nationally, a little more than 92 percent of all mortgage loans were current, while 6.30 percent were seriously delinquent (i.e. more than 90 days past due). For sub-prime mortgages, which make up 11 percent of all mortgages, however, the overall delinquency percentage is 23.11 percent, and 33 percent for those with adjustable rates (ARMs). California’s ARM delinquency percentage is 39 percent and Florida’s a staggering 47 percent.
In other words, one of every four sub-primes is seriously delinquent nationwide, as is one of every three ARMs. It’s much worse in the two states thought to be havens for speculators. National delinquency rates like that simply cannot happen without extensive speculation and mortgage fraud, especially loan officers and applicants using false income, debt and other data.
Otherwise, it will be impossible to prevent such fraud from continuing and even expanding – metastasizing – throughout the mortgage finance industry. But when The Examiner asked the White House press office if the president plans a national anti-fraud program, we were referred to the Justice Department. There, a spokesman said he was unaware of such a program, though individual U.S. prosecutors might be launching their own efforts. The FBI has an anti-mortgage fraud effort, but the G-men clearly could use some help....
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