Category Archives: Financial Crisis

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An End to the Recession in 2009?

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That’s what economists are saying. And not just any economists — a panel of 45 economists from the National Association for Business Economics Outlook (NABE). In the report issued yesterday, the panel stated:

  • They expect a further decline in economic activity during the second quarter, making for the most severe economic contraction in over half a century.
  • The near-term weakness is largely due to a sharp retrenchment in business investment.
  • Rising government spending will provide vital support to the economy, as the only major expenditure area posting positive growth in 2009.
  • A modest second-half rebound in real GDP is still expected.
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  • Growth in 2010 is slated for a return to near its historical trend, with real GDP rising 2.7% on a fourth quarter- to-fourth quarter basis.
  • Labor productivity remains impressive and is expected to improve.

Chris Varvares, NABE’s president, stressed that though economic recovery is in sight, the economy will continue in a downward spiral for the next several quarters.

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According to the report, the key downside risks remain continued large job losses, no improvement in credit conditions and further sharp declines in home value.

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“The good news is that the NABE panel expects economic growth to turn positive in the second half of this year, with the pace of job losses narrowing sharply over the remainder of this year and employment turning up in early 2010,” Mr. Varvares said.

Though the report claims the next several months will remain challenging for businesses and consumers, let’s hope Mr. Varvares and NABE are correct in their long-range future predictions.

What do you think? Do you agree with NABE’s forecast?

shutterstock_recovery2

Any Volunteers?

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AIG head Edward Liddy has had enough. He is leaving the company.

He has reportedly been talking to the board for a while about his exit strategy and although he will stay on as both chief executive and chairman until a successor is found, I think it’s fair to say that these past few months will not be among his fondest memories.

“This isn’t exactly what I thought I’d be doing in retirement,” he said Thursday in an interview.

From Liddy’s perspective, catering to the demands of all the different “cooks in the kitchen” that now govern AIG is a near-impossible challenge.

He said the job entailed answering to the board, the Fed, the Treasury, Congress and 450 regulatory bodies in 130 countries.

“It doesn’t make sense to have one person do it,” he added.

Instead, he thinks the job he has been doing needs to become two separate roles: a chairman responsible for governance and “walking the halls of Congress,” and a chief exec to run operations.

Sounds like a good plan? Now…Who wants to do it?

A Revolution in Risk Modeling

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Let’s hear it for Jesper Andersen and Toby Segaran, two geniuses who saw an opportunity after AAA-rated companies began to fail in the midst of the economic collapse. Their solution?  Sounds obvious — a more effective corporate credit risk modeling system.

So the two entrepreneurs and analytics gurus put their heads together to form freerisk.org, which is:

a project with the goal of making freely available the data, algorithms and tools necessary to perform risk modeling. We believe that risk management is too important to society to be an arcane subject or competitive advantage.

And the risk management community screams “Hallelujah!”

Most of the numbers are crunched by a team of volunteer finance fanatics who rate companies using crowdsourcing. The site even offers an open application programming interface (API), which lets users design their own risk-crunching models.

Will this site serve to forever correct the corrupt and biased ratings of agencies such as AM Best, Moody’s and Standard & Poor’s?  Maybe not, but it’s a great alternative.

Life Insurers Receive Bailout

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shutterstock_stimulate-economyIt was announced today that the following life insurers will receive bailout funds from the Troubled Asset Relief Program (TARP):

  • Allstate                                                                   
  • Ameriprise Financial                                     
  • Hartford Financial Services Group Inc.
  • Lincoln National Corp.
  • Prinicpal Financial
  • Prudential Financial

According to Treasury Department spokesman Andrew Williams, those life insurers met the requirements for the Capital Purchase Program because of their bank holding company status.

Investors have been increasingly worried about the health of life insurers, which have been hit hard by worries about capital requirements and growing losses. A number of insurers that are also bank holding companies or thrifts have been eligible for funds from TARP since last fall. Last year, the Office of Thrift Supervision approved applications from Hartford and Lincoln to become bank holding companies, because of their planned bank purchases.

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The bailout money is badly needed as insurers have seen their cash eroded by declining market value of securities they hold.

A number of insurers could use the money because they’ve suffered losses in the financial markets.

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The companies invest the premiums they collect and use the proceeds to pay out claims.

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Investment losses have led ratings firms to downgrade some insurance companies, making it more difficult for the insurance companies to borrow money and attract capital.

Also, because numerous companies provide retirement annuities, which gaurantee payments to retirees, a cash infusion is needed to hold the public’s confidence in these companies and the market in general.

The insurance sector got a boost this morning when news of the planned bailout sent shares skyrocketing for the insurance companies involved, but, unfortunately, not for the market as a whole.