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What Happened March 3-4?

Mar 05, 2009

On March 2, 2009 insurance giant AIG announced that it had lost $61.7 billion just in the past quarter. This was the largest such loss in world history. The government sent them a $30 billion Christmas gift, leaving AIG will a mere $31.7 billion hole in their balance sheet. The DOW dropped 300 points the same day, showing that it was not very impressed with this tiny gift. The word is apparently out that AIG is on the hook for at least $500 billion--and most likely much more than that.

Most ominous is the government statement that if AIG goes down, it will take the whole world down with it. That statement, I think, is true, but I'm not sure how many people really understand the seriousness of the situation. The fact is, AIG is going down, whether the government bails it out or not. And when it does, it WILL take down the entire world economy. AIG stands for All Income Gone.

If this were just a one-time loss, things might be looking up. But unfortunately, AIG is just beginning to pay off on all of the toxic mortgages that it insured with low premiums. These will either bankrupt AIG or the government will assume the liabilities of AIG as an insurer that charges no premiums at all.

If the government does not allow AIG to go bankrupt, the government itself will go bankrupt trying to prop it up. In this global mentality, it's all or nothing. We all stand together, or we all fall together. It appears that the government has chosen to make us all fall together, because the collapse of AIG, they believe, would cause the whole world economy to collapse anyway.

Since either choice has the same net effect, they might as well try to stop the collapse by giving money to AIG. In spite of Ben Bernanke's "anger" at the heads of AIG. This "solution" will greatly inflate the money supply, as the Fed will have to monetize the debt. Fewer and fewer countries have the resources to buy our debt with previously-created dollars, because the low price of oil is bankrupting them, too.

In the short term, conditions appear to be such that the value of the dollar is high (compared to other falling currencies). But consider this to be a temporary situation. The tidal wave goes back and forth across the Atlantic.

The other big economic story is that Citigroup's shares have finally dropped below $1.00. If their shares remain below $1.00 for thirty days, they are in danger of being dropped off the listing for NY Stock Exchange. The news today tells us:

Shares of Citigroup Inc., once the nation's most powerful bank, fell below $1 a share Thursday.

The stock fell to 97 cents in late morning trading, down 16 cents or 14.2 percent from Wednesday.

New York-based Citi has lost more than 85 percent of its value so far this year, and is down more than 95 percent from a year ago as the bank was pummeled by the financial market crisis.

Citigroup's shares will remain on the New York Stock Exchange. Last week, the NYSE relaxed its listing rules to allow stocks that fall under $1 to still be listed and traded on the exchange.


It looks to me like 490 days after Meredith Whitney blew the whistle on Citigroup's shenanigans, the doctors of finance are ready to declare Citgroup either dead or in a vegetative state.

But there is another development as well that may prove to be of great significance, although it is starting out small. Senator Patrick Leahy has organized a Truth Commission to investigate how the Bush administration may have done illegal and unconstitutional things in his "war on terror." This was announced on March 4.


This small beginning has a lot of potential for the future. Watch it closely.

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Dr. Stephen Jones

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