The Simple Accountant

Foreclosing on AIG: What Can We Learn from This?

This article in rather misleading. There are in fact potential buyers for the spun off units, including serious interest from Met Life. The American taxpayer is very likely recover some part of the "investment" in AIG.

A side note on SIVs and Enron: in that case, if I recall, Enron executives were creating entities which borrowed money from banks and other lenders, with the loans guaranteed by Enron. The entities then purchased Enron shares with the proceeds. Needless to say, the loan guarantees were not properly disclosed and the entities were not consolidated into Enron's financial statements.

In effect, Enron was taking on debt and calling it equity, which materially changed their capital structure, misleading lenders and investors. This also had the effect of making leveraged bets on their own shares. When the market value of shares started to crater after the dotcom bust, the entities began to default, the scheme fell apart, and the entire company imploded. Pretty clearly an egregious abuse of a legitimate financing strategy. Does that, however, mean that special purpose entities should always and everywhere be prohibited? I think not.

It May Be Time to Go Contrarian

@Mad Hedge:

To clarify a detail, Dave Rosenberg was chief economist at Merrill; Rich Bernstein was chief strategist. Their departures this spring have left B of A - MLS a much poorer firm, from a client perspective.

Why Capping Pay Is Likely to Work

The type of individual who would be attracted to a senior management role at a major financial institution, in this era, is not going to be the person who is motivated primarily by salary. Having worked with CEOs and entrepreneurs, albeit at a smaller enterprise level, my observation is that the better ones are more motivated by the challenge, and the sense of accomplishment or adulation, than by pure avarice.

They see themselves in some sense as heroic figures, and that may not be such a bad thing given the present circumstance. Imagine the public acclaim that would go to the CEO who "turned around Citi" or "saved B of A." My sense of the zeitgeist here is that this is what people seek.

Great Depression Not Imminent, But Inevitable

Inevitability of a great depression is a non sequitur, given the analysis in the article. The evidence is troubling, indeed, but inevitability is a extraordinary claim which should not be made lightly.