"PricewaterhouseCoopers LLC, that they have concluded that at December 31, 2007, AIG had a material weakness in its internal control over financial reporting and oversight relating to the fair value valuation of the AIGFP super senior credit default swap portfolio."
This deficiency resulted in another $4.9B being written down. You may remember that AIG previously stated in the media that it had immaterial exposures during 3rd quarter's earning release. Today, AIG closed down 11.72%. It is off more than 38.3% off of its high in July. (As I write I here my e-mail pinging, and I see that VF has sent a missive which I'll post).
If you were to look at other insurers AXA, HIG, ALL, LTR, PRU you will see other heavy discounting. On CNBC I've heard the same analyst twice recommend AIG at different times, in addition to LTR. I didn't understand how a PROFESSIONAL could get on TV and make such recommendations without mentioning, even casually, the exposure that these insurance companies have. I wrote about this exposure here. In fact, I think that I was one of the first folks that even brought up this specetr for this industry group--prompted by my research on Hedge Funds and Systemic Risk which many of you were brave enough to follow along with me.
My rant is centered on the selectivity of information that is shared with the consuming public. Accordingly, if you had listened to this professional, without doing your own homework, you would be feeling considerably hoodwinked--no only by the professional money manager but also by the company (AIG) that attempted to assuage investor concerns. May I also remind you that early last year, many of the retailers noted weaker sales, but for at least two quarters re-affirmed their guidance, until 3rd quarter, when they had to slash it. The lesson is that your noggin is likely as good as most people's on TV. Why these folks are invited on and never held accountable for recommendations is beyond me.
It is in our nature to want to have our fears calmed. But soothing words are only temporary. Remember that my favorite aphorism from my Armenian grandmother is "You cannot cover shit with snow." Seems like lots of piles of shit are on the ground, and lots of snow was used to cover them. The snow is melting--and melting snow seems to this observer to be coincident with systemic risk rattling the markets yet again. A healthy skepticism (as opposed to an unhealthy paranoia) is warranted here. Make sure that you understand your own exposures.
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