A fascinating, in-depth look at the finanical crisis in Iceland from Michael Lewis: http://www.vanityfair.com/politics/features/2009/04/iceland200904

AIG bonus bill

Think the economy's bad now? Wait till the world gets the message that American business is subject to retrospective bills of attainder.

AIG

There's a lot of outrage in the press about the bonuses being paid out to AIG employees. I think this focus on the bonuses is to miss the larger picture.

At this point, AIG is 80% owned by the federal government, the common equity is long since destroyed, and whatever one thinks about the process, this is by no means a liquidation or ordinary bankruptcy proceeding.

AIG has received billions from the feds, which then go right back out to pay creditors. Had AIG defaulted on its obligations in an ordinary bankruptcy proceeding, it's entirely likely that their creditors would have had to apply for bailout money of their own.

From this perspective, it's probably smart to think of AIG as a pipeline for the feds to distribute money without taking official ownership stakes in the subject institutions. This point becomes particularly important when one considers the tens of billions of dollars paid out by AIG to non-US banks.

So given that AIG is essentially a shell through which the US government is moving funds around the world to preserve order in the financial system, the tempest over the bonuses is a search for a scapegoat.

We have a choice with the AIG people, many of whom are absolutely crucial to winding down their trades. We can refuse to pay them what they are legally entitled to by act of Congress. Or we can treat them badly. Do both, and they will quit. And their insider knowledge of these trades will be gone. Who replaces them then and unwinds the trades? The SEC? The government?

In short, when you buy a white elephant like AIG, there's a lot of manure that comes with it.

Hello again

Hello everyone. Well, ok, Mom. And maybe a couple of folks who surfed in from Twitter. I've taken some time off from the blog and likely killed any momentum I had going, but I'm back and blogging away.

I've been on the road for a while, am currently working on a startup venture that I'm really excited about, and have been dealing with some serious health issues that are hopefully in the rearview.

So stand by for further posts on economics, news, my startup adventures, and maybe even something about marketing here and there. Lastly, if you happen to be or know of a Drupal designer looking for work on an interesting 2.0 startup, please do get in touch.

An aside on bailouts

There are a lot of good arguments for and against the Detroit bailout. This post will not contain any of them.

If I were either the incoming or outgoing president, I'd give long and careful consideration to raising WIC and food stamp benefits to address the costs associated with food price inflation over the last few years.

The advisability or morality of corporate bailouts aside, one is left to wonder what purpose Western-style representative government serves if not to protect and assist poor children.

Tax collection?

Diamonds produced from Tequila

Pure genius or a brand extension too far?

"A method of producing synthetic diamonds using tequila - Mexico's favourite alcoholic drink - has been discovered, scientists there say."

Linked from: http://news.bbc.co.uk/2/hi/americas/7725815.stm

Watching for Signs of Progress

Calculated Risk compiles some excellent indicators for the road ahead:

http://calculatedrisk.blogspot.com/2008/10/credit-crisis-watching-for-signs-of.html

Bailout, round 4

Another component of the problem:

Junk mortgage originators, not necessarily fraudulent, pool loans that have either zero or very minimal down payments.

The loans are carved into tranches and compliant rating agencies rate the tranches at AA or higher. These tranches are more attractive to banks and produce more paper income than the bank originating a safer mortgage by itself.

The credit agencies profit from higher fees, the banks have to keep less capital on hand to offset what should have been lower graded securities, and everyone profits from regulatory arbitrage. Certainly not the only reason for the continuing credit issues, but a useful example of how poorly crafted regulations and spotty enforcement lead to actual problems.

Iceland

Some links regarding the truly amazing crisis playing out in Iceland:

Near-bankruptcy: http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20081007/Iceland_bankruptcy_081007/20081007?hub=TopStories

UK uses anti-terrorism laws to freeze 6.8 BN in Icelandic assets. Also, Iceland, a founding member of Nato, is likely to lease/sell military bases to the Russians in exchange for 4.5 BN: http://www.businessweek.com/globalbiz/content/oct2008/gb2008109_947306.htm

For sale on Ebay. Bid level at 31.00 USD at time of posting. Bjork not included: http://cgi.ebay.com/Iceland-Predator-Country_W0QQitemZ320309633199QQcmdZViewItem?hash=item320309633199&_trkparms=72%3A141739%3A166%3A265%3A12240%3A1318&_trksid=p3286.c0.m14

Google adds anti drunk dial tool

Official Gmail Blog: New in Labs: Stop sending mail you later regret

A cell-phone firm in Australia did a similar thing to try and stop drunk dialing a few years ago. I think the real value-add is to team the Google service up with http://www.hollywoodiscalling.com/

That kind of crossover service could take the drunk dial to some truly awesome places. Horrible, to be sure, but you'd have to expect some amazing comedy when a frustrated drunk unleashes Larry Holmes or Horshack on his unsuspecting ex-girlfriend.

More economics doom n' gloom anon. Problems in Iceland, the potential collapse of the European Currency Union, and why credit segmentation really really matters.

My prediction: We'll all need a drink or two by the end of the week and drunkenly getting Horshack to call folks is only going to sound smarter and smarter as the month goes on.