Photo by tacvbo

According to a report in the Wall Street Journal, AIG is in debt to Wall Street’s biggest firms to the tune of $10 Billion. The liability is due to speculative trades that have gone bad. Unfortunately the terms of the $150 Billion bailout made back in September didn’t cover the types of speculative trades that are causing this debt, leaving AIG again with their hand out asking for more money.

Even worse, the details of the trades seem to imply that AIG was not honest with the extent of its risk-taking actions when they made their appeal for help back in September.

“The soured trades and the amount lost on them haven’t been explicitly detailed before. In a recent quarterly filing, AIG does note exposure to speculative bets without going into detail. An AIG spokesman characterizes the trades not as speculative bets but as ‘credit protection instruments.’”

So let’s recap the extent of AIG’s attempts at bending the truth and wasting money:

• October 1st: Held weeklong retreat at luxurious $1,000 a night resort in Monarch Beach California.
• November 3rd: Held secret outing at resort in Arizona, hidden logos and signs.
• November 26th: Quietly announced they would be giving out ‘cash awards’ to 130 managers, including $3 million to retirement services chief Jay Wintrob.

And now

• December 10th: Realized they owe $10 billion because of risky investments that went bad, and weren’t discussed in their initial plea for government funds.

Time will tell what dishonest, money-wasting scheme they will come up with next.

Share This Article:

Congress announced this week they are inching closer to making a deal with the Ford, GM and Chrysler companies to provide financial aid to keep them afloat until early 2009. I bet if they made good cars and consistently kept their expenses below their earnings, they might actually be able to survive on their own. Whatever happened to good old-fashioned capitalism and having to make money to stay in business? Did Ford, GM, and Chrysler just now figure out that they haven’t been turning a profit in years?

Here are some numbers I pulled directly from Google finance which show the stark contrast between failing companies and healthy ones. Even though the numbers are in Japanese Yen, Dollars and Indian Rupees, the important factor is the obvious negative net income vs. positive net income. (Numbers are in Millions)

And this doesn’t even show the 2008 numbers, which undoubtably will be even worse. Unfortunately jobs will be lost, but why reward a business that is failing? Why waist money on a business that has operated at a consistent loss for 3-4 years.

Their claim is that too many jobs would be lost, and the after shock of that would be “catastrophic” for the US economy. But what about this:

• Honda reports it’s plant in Anna Ohio is doing fine, it even underwent a $75,000, 135,000 square foot expansion.
• Toyota opened its second R&D campus in October 2008, in York Township, Michigan.
• BMW has over 200 suppliers in North America. Toyota has roughly 500 major suppliers in North America.

The U.S. is really good at a lot of stuff: technology, innovation, entertainment, and design to name a few – but sorry, currently they just can’t make cars. Yes, I did say currently. Who knows what a stiff kick in the butt (going out of business and massive job loss) might do?

Here’s some simple yet hard advise: if you want to stay in business you have to make money, otherwise you have no business being in business. Take it from someone who knows a little about making money:

 “Sales minus costs equals profit. Is there more?” – Bill Gates

Share This Article: