How the Masters of the Universe got that way

By Michael Fraase

Tuesday, 11 November 2008 09:18PM CDT

Section: Business

Freakout dollarLast September, the US Federal Reserve Board bailed out American International Group (AIG) to the tune of US$85 billion. In return, the US citizenry received 80% of the company. This was one of those “too big to fail” deals.

Here’s how the New York Times explained the reasoning behind the bailout:

“If AIG had collapsed—and been unable to pay all of its insurance claims—institutional investors around the world would have been instantly forced to reappraise the value of those securities, and that in turn would have reduced their own capital and the value of their own debt. Small investors, including anyone who owned money market funds with AIG securities, could have been hurt, too. And some insurance policy holders were worried, even though they have some protections.“

Um, isn’t that how it’s supposed to work? When you make a bad investment, you take the loss—you can bet your ass that the individual AIG investors have already taken their losses. Insurance is another matter entirely of course, but as the Times stated, there are protections already in place for AIG policy holders. Because the value of investments in AIG are not being reset, the Federal Reserve has done nothing to prevent this from happening again. Worse, there’s nothing being done to address the “too big to fail” issue. If an entity is too big to fail it’s too big to exist. Pretty simple—not exactly rocket science.

Oh, but we’re not done yet. Not hardly.

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Why we hate Wall Street executives

By Michael Fraase

Tuesday, 07 October 2008 09:37PM CDT

Section: Business

Market crash Just days—days—after the US government bailed out AIG to the tune of US$85 billion and the US citizenry collectively entered the insurance business, AIG executives headed to the St. Regis Resort in Monarch Beach, CA. While there, the company’s executives ran up a US$440,000 bill—US$200,000 for rooms, US$150,000 for meals, and US$23,000 for the spa. The royal we wonder where the remaining US$67,000 went, but that’s what imaginations are for.

Representative Henry Waxman (D-California) totaled up the figures in today’s House of Representatives committee hearing about AIG’s close call with the financial reaper. “Less than a week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation,“ Waxman said.

Sadly, but perhaps unsurprisingly, AIG executives continue to draw multimillion-dollar paychecks. In fact, documents provided by AIG to Waxman’s committee indicate that “as the company’s risky investments began to implode, the company altered its generous executive pay plan to pay out regardless of such losses,“ according to Peter Whoriskey’s Washington Post account. In March, after having lost more than US$5 billion in the fourth quarter of 2007, AIG chief executive Martin Sullivan urged the company’s compensation committee to “ignore those losses” and award bonuses. Which, of course, it did, awarding Sullivan a cash bonus in excess of US$5 million and a golden parachute of US$15 million.

Ob-La-Di, Ob-La-Da.

Update: Thursday, 09 October 2008 05:37AM CDT: On Wednesday, the US Federal Reserve announced that it would lend AIG an additional US$37.8 billion. Sigh.

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Oh noes, White Lily is done

By Michael Fraase

Wednesday, 18 June 2008 04:58AM CDT

Section: Business

White Lily flourAnybody who eats and has spent time in the US South knows that White Lily flour is for biscuits. Transplants like me have to con their wives into bringing it back in suitcases from family sojourns lest we be reduced into getting it from fancy-pants specialty stores like Williams-Sonoma at outrageous prices.

White Lily was always the cheapest kind of flour in its native South. Here, on the far north edge—if it can be found at all—it’s an imported delicacy commanding ransom-like prices similar to those paid by anyone south of here for wild rice.

But all that’s over; White Lily was purchased by the J.M. Smucker Company last year. White Lily is done. Demonstrating that jelly people know surprisingly little about flour, or even biscuits for god’s sake, the first thing Smucker did was close the downtown-Knoxville White Lily mill. And, yes, began producing the flour in two Midwest plants, according to Shaila Dewan writing for the New York Times. White Lily had been produced in downtown Knoxville since 1883; that’s done at the end of July when the mill closes for good.

Dewan reports the flour produced in the Midwest is, you guessed it, nothing like White Lilly:

“Maribeth Badertscher, a spokeswoman for the company, said the new White Lily was the result of thorough product testing and promised that customers ‘won’t know the difference.‘ But in a blind test for The New York Times, two bakers could immediately tell the old from the new.“

The difference that makes a difference in the case of White Lily is where it came from: low-protein, low-gluten, soft red winter wheat. The kind that used to be grown throughout the deep South. The kind that, before consolidated national food distribution systems, was the only kind of wheat southern millers could get. Today the wheat variant is grown in the US Midwest, but it’s nothing like what came from the red-clay South.

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