Alex Filonov

One Easy CDS Fix

You are right that there are few net sellers of CDS. Unfortunately, AIG is one of them.

Why AIG Wasn't Allowed to Fail

Walk out of mortgage and declare bankruptcy.


On Mar 17 02:40 PM Thadeus Thornton III wrote:

> So how do I get to pass my default on my home and car loans off on
> someone else? I mean I can get PMI for my home, but that doesn't
> allow me to be reckless and stupid. Does anyone know of an insurer
> (besides AIG) who will give me a policy soon so that I can default
> and have my stuff for free. . . Oh, and maybe with a cash "bonus"
> too for being crafty enough to think of this?

AIG's Blackmail Note

On Mar 16 05:11 PM Jackson Cash wrote:

> Get rid of AIG, crash and burn baby.
>
> Let the banks go #uck themselves, as for the little guy, he'll be
> okay, always has.
>
> I encourage every single consumer to withdraw their money from banks,
> and do not spend a dime.

Great. Now explain how to do it, please. I receive my salary through the bank, pay my mortgage to the bank, pay utility bills through the bank. When I travel, I use credit card issued by the bank to pay for tickets and car rent. There are not many people in this country who can live without banks. And I can't live without eating (any advice on that?), so I need to spend. Besides, climate in Minnesota, as well as local customs, don't allow me to walk naked outside of my house, so I need to buy clothing once in a while.

Sorry, if you live, you need banks. Or credit unions, which is essentially the same.

AIG's Blackmail Note

The company is not that big. The problem is that it wrote a lot of credit default swaps, total amount is unknown but probably in trillions. AIG can't possibly pay their obligations on those swaps, that's why it needs government support. Technically, AIG is bankrupt, but if it declares bankruptcy, world's financial system is in grave danger.


On Mar 16 04:06 PM Upset Investor wrote:

> Thank God I'm not invested with AIG. Talk about Monopoly. How can
> one company and its subsidiaries get so large without public notice??
> I have to agree that if AIG should fail, the fall out would be catastrophic
> world wide. What now?? Certainly not millions in bonuses for crooks
> and idiots while the "little" guy goes down in flames. May the perpetrators
> rot in hell !!

AIG's Blackmail Note

Outrage about bonuses is stupid: $135 million in bonuses is less than 1/1000 of the money government loaned to AIG.

I think bailout of AIG was a huge mistake. Better option was to take over the company. Sure, I'm against nationalization in most cases, but this case is special. AIG is technically bankrupt, I don't know if it has any ability to repay government loans. On the other hand, AIG bankruptcy will definitely be a total disaster for world financial system. I think nationalization of AIG is the best option right now (of all bad ones).

Cramer's Mad Money - Cramer, SEC Chairman? (12/2/08)

Cramer doesn't get my vote. He is way too emotional for this job. Maybe some of the proposed changes are needed. Others are obvious bunk: bear raids might break a bank or a brokerage which needs to do a secondary offering, but they didn't have anything to do with Lehman collapse. Lehman, Goldman and Morgan Stanley were a subject of a classic run on bank in September. You can't save yourself from a run by secondary offering, takes too much time. It was Paulson and Bernanke fault, they should've given Lehman a lifeline. Later they allowed Morgan Stanley and Goldman to register as banks to get access to Fed's window, which obviously saved them. Lehman shoud've been given the same possibility in September.

Main thing, Jim is often forgetting that markets are bigger than any government. When some regulations are needed, you can't make market to do something which it doesn't want to.

Last but not least: if bear raids should be investigated, how about bull raids?

The Right Kind of Bailout

There are no good options here, the choice is between bad and worse. Which is compounded by the main problem at GM and Ford: they didn't make money on vehicles even in good times. Main source of profit was in financing, GM and Ford were making money like banks. Now, when banks lose money, Detroit is doomed. I don't know situation at Chrysler, but GM and Ford don't have anything to survive in their current shape. No bailout would help. Bankruptcy might, especially if it frees companies of their union contracts and pension obligations. BTW, bankruptcy will trigger automatic rescue from government, because gov will have to take over pension obligations. But even then, both companies have to go through drastic restructuring, closing at least 50% factories each, streamlining development, retooling and doing a lot of things which require a lot of money (and the source of this money?...)

Nationalization, proposed by some, is not a cure, it's a funeral. The only examples I know are Britain and France. There is almost no auto industry in Britain anymore. In France, Renault cost taxpayers huge money until it was finally privatized. If we don't want national automakers in this country, then let's nationalize them. But I'm afraid it's cheaper to close them outright and just pay pension to all workers.

Turbulent Times Require a Disciplined Approach to Investing

Sure, there are buying opportunities. The question is: where? I wouldn't touch financials with 10 foot pole right now. Goldman Sachs under 100! It's under book value! The problem is, I don't know how rotten this book is. Yes, it's time to buy something. But remember: many stocks are going down even more, and you don't know which ones. If you diversify today, you win tomorrow, just be prepared to see half of you position go down and stay there. This was my experience of 2000-2002.

Lehman's Collapse: Broader Economic Damage Unlikely

Deflation is bad for everybody. "Don't ask for whom the bell tolls, it tolls for thee".