Melts In Your Hand, Not In Your Mouth

iVillage Member
Registered: 08-19-2007
Melts In Your Hand, Not In Your Mouth
2
Wed, 09-17-2008 - 11:22pm

Interesting perspectives:


AIG's Rotten Paper Could Bring the House Down
By William Greider


September 17, 2008

For the first time in this unfolding financial crisis, I felt personally scared by the news. Not about my money, but about the potential for catastrophe. The Federal Reserve's lightning rescue of AIG has the smell of systemic fear. The house of global finance is on fire and everyone is running for the exits, no sure way to turn them around. What's next? The question itself is ominous, because there are no good answers. http://www.thenation.com/doc/20080929/greider2


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The "L" word
As in "leverage," the sharp knife in corporate seppuku dramas. Leverage is, by my estimation, the No. 1 reason why companies fail.


And compared with its peers, AIG had one of the sharpest knives around. Here's how its leverage (assets to equity) stacked up against other insurance operations as of December 2007:



  • AIG: 11 to 1.
  • Markel (NYSE: MKL): 4 to 1.
  • Berkshire Hathaway (NYSE: BRK-B): 2 to 1.
  • Montpelier Re (NYSE: MRH): 2 to 1.
  • Travelers (NYSE: TRV): 4 to 1.
  • White Mountains Insurance (NYSE: WTM): 4 to 1.
  • Chubb (NYSE: CB): 4 to 1.

I would love it if someone gave me a rational, believable explanation of why leveraging your equity 11-to-1 is a good thing for an insurer. The sole job of an insurance CEO is to ensure that his or her company stays in business; the CEO's job has nothing -- absolutely nothing -- to do with growing profits every year in a steady, smooth line. http://www.fool.com/investing/general/2008/09/17/aigs-failure-is-so-much-bigger-than-enron.aspx?source=ihptclhpa0000001




Edited 9/17/2008 11:24 pm ET by glitter_girl_5000
iVillage Member
Registered: 09-08-2008
Wed, 09-17-2008 - 11:27pm
With great risk comes great rewards. Fortune favors the brave. And all of that other rhetoric. Bush43 is setting up our gov't for a big fall...and not a wind fall either. We should be able to sue him for damages if this company goes under.

iVillage Member
Registered: 08-19-2007
Wed, 09-17-2008 - 11:31pm
It'll go under. The taxpayers are simply paying for it to go under more slowly.