AIG’s allocation of cash to fund existing exposure to vanilla insurance products it sells is woefully underfunded according to an analyst’s report. Because of the tidal wave of CDS exposure AIG has taken its eye off the basic products it offers.
Secondly and most importantly, AIG still has huge exposure to the derivative market with all these exotic products tied to Basel 1 and soon Basel 2 accords. Once Basel 2 kicks in in early 2010, AIG will need to ramp up its balance sheet to raise Tier-1 capital to increase the coverage of its balance sheet to the notional exposure to the CDS underwriting.
I believe this is the most important note on why Fed chief Ben Bernanke does not want his books scrutinized. The Fed may have as much as a trillion dollars on its books for covering AIG’s obligations to European banks during last year’s panic.
Goldman Sachs was not the only one to receive a golden life preserver from the private banking system through AIG’s government takedown.
JOBS, JOBS, NO JOBS
This Friday’s jobless report for November will probably shock most Wall Street economists.
Not on the down side, because most estimates have the number below 130,000. The Bureau of Labor Statistics’ fudge number for November is traditionally lower than summer and early fall numbers.
By fudge number I mean the Birth/Death Model the BLS uses to guesstimate the number of new businesses started in the month, but cannot be documented.
I believe the number will be 160,000 because of this funny math above and The Street will take two steps back on the news.
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