Benmosche’s latest tantrum is over a lack of board support for the sale price of AIA, the company’s Asian unit. Prudential UK, which planned to buy the unit, was not able to raise the funds. Benmosche advocated dropping the price for AIA to $30.4 billion from the original price of $35.5 billion. The AIG board rejected the plan.

According to Bloomberg, “During a June 25 meeting of New York-based AIG’s board, Benmosche, 66, demanded more control over the divestiture of the company’s main Asia unit, including making top-level management changes.” The action was nothing less than an attempt to undermine the power of AIG’s independent board. Bloomberg also reports that Benmosche insisted that the company’s chairman, Harvey Golub, a seasoned financial executive, step down.

AIG’s board has had to deal with enough of Benmosche’s explosions that it is best to let him go. Golub has enough experience to take his place and it would add stability to AIG’s management. A CEO who repeatedly pressures his board by saying he is prepared to leave is really no CEO at all.

AIG received more than $180 billion in government aid when its financial collapse was imminent. Fed and Treasury officials argued that the insurance company’s web of relationships with large US and foreign banks meant the AIG disaster would spread throughout the credit system

Now AIG’s board is faced with paying back as much of that taxpayer bailout as it possible. The board believes that an IPO of AIA would unlock the value of the business as much as a sale would. No one can know which path is the best way to get the largest price for AIA. That includes Benmosche.

Douglas A. McIntyre

Twitter has, by most estimates, 100 million members, which makes it one of the largest social networks in the world. All major media companies are on Twitter and some have more than one million Twitter users. It raises the question of whether there is wisdom in crowds.

24/7 Wall St. will look at the Twitter posts at Reuters Biz, WSJ, Financial Times, CNN Money, MarketWatch, CNBC, and 24/7 Wall St. each day to see which stocks are most frequently mentioned. It is clear that in this area of social media these tweet are a sign of which companies the Twitter universe is interested in. These financial sites are followed by a combined 625,000 Twitter users which makes them a sizeable sample of Wall St.’s interests. In some cases, we will publish the actual tweets from the sites.

Among the daily top trending  symbols on stock twitter aggregator StockTwits include Procter & Gamble Company (NYSE: PG), Monsanto Company (NYSE: MON), Energy Solutions (NYSE: ES), FirstFed Financial Corp. (NYSE: FED), and SPDR Dow Jones Industrial Average.

CNN Money: Fannie Mae seeks $8.4 billion in additional government aid after reporting a $13.1 billion loss in the first quarter.

MarketWatch: Oil rallies 4% in wake of EU aid plan http://on.mktw.net/cT7s9d

MarketWatch: Stock futures rise sharply in wake of EU plan to protect euro; Dow futures up 400 points http://on.mktw.net/clFJIn

FT: Investors welcome €720bn EU bail-out: Global Markets Overview: Euro claws back last week’s losses as fears over so… http://bit.ly/cvgA9f

Reuters Biz: Goldman warns of more litigation, investigations http://link.reuters.com/wer43k

Reuters Biz: McDonald’s April same-store sales up 4.9 percent http://link.reuters.com/ver43k

Douglas A. McIntyre

One of the latest proposals to build a large reservoir of capital to back-stop the failure of a major financial institution is the new FDIC proposal, which its board appears to favor. It raises the amount of money a bank pays to the insurance fund based on risk. This implies that the FDIC has a reasonable way to assess which financial companies engage in risky practices. Banks that only take deposits are safer, or so it would seem, than banks which trade large sums of money for their own accounts.

The new risk fee would apply to financial companies with assets over $10 billion. The Wall Street Journal reports that there would be another, smaller class of banks that would get extra scrutiny and would probably be charged an extraordinary tax based on the effect their failures would have.

‘Additionally, the proposal would allow the FDIC to take a special look at “highly complex” financial institutions: those with more than $50 billion in assets and holding company assets of more than $500 billion.’

The select few banks that fall within this description include Goldman Sachs Group, Inc. (NYSE: GS), JPMorgan Chase & Co. (NYSE: JPM), Morgan Stanley (NYSE:MS), Citigroup, Inc. (NYSE: C), and Bank of America Corporation (NYSE:BAC).

Another proposal to build a financial safety net to cover government expenditures in the case  of a bank failure that would be large enough to create systemic market risk has become popular in Europe. The Europeans and the IMF are trying to export the plan to the US Congress. The biggest financial firms would pay special surcharges which would put money into a fund similar to the one proposed by the FDIC. The goal of both proposals is the same: the money collected is meant to pay for a big bank’s funeral and keep the taxpayer from ending up in the morgue as well.

The last major proposal to help allay the risks of the implosion of  troubled big banks is to implement what regulators call “living wills.” Under this strategy, large financial firms would propose plans for government action if they were to fail and require dismantling. The proposal assumes the managements of these banks know the way to break themselves up better than regulators or the best consultants from McKinsey & Co do. According to the FT, the IMF has written a document to test the theory behind special death funds and living wills.

‘The fund argues that without strong tools to prevent banks from taking outsized risks, the proposed creation of “systemic regulators” in the US and Europe would do little to protect the world from another devastating banking crisis.’

The problem with any attempt to create a tax system based on the risk profile or size of a large bank is that the program could never decide what kind of catastrophe will create the next financial crisis. The S&L crisis and Latin American debt crisis, both of which happened not long ago, looked very little like the credit crisis of late 2008. One crisis does not necessarily prepare the regulatory or financial system for the next. Altering the perception of risk does nothing to prevent another crisis. Solid regulation can contain what it can see and audit. This does not argue against new laws that cover charging large banks for their size or behavior. It does argue that in the future the fund that is created may be used for unintended problems in the credit system  and not those for which is was meant.

The idea of the “Volcker rule” seems to be fading. It is nearly impossible to use his plan to separate banks into  two parts–one a simple commercial enterprise that holds deposits and makes straight-forward loans and one that houses proprietary trading and hedging businesses. A firm like Bank of America could be split into several pieces.  One would essentially become a hedge fund,  another would be little more than a community bank, and a third piece would be an international corporate banks to serve business clients. Most members of Congress do not favor surgery that radical or hard to perform.

A bank risk tax, in one form or another, is the most likely of the proposals to be voted into law. In the process, the Administration and White House will have to decide which regulators will handle which parts of the new regulations. The Fed might take on some of that duty and so might the FDIC. Some members of Congress – including, at one point Senator Chris Dodd, wanted to create a completely new agency to oversee parts of the bank and institutional investing industries.

There may not be another global financial catastrophe for decades, and when one does come, it may not be like the S&L crisis. The current situation in Greece shows that the problems of Latin American debt that nearly scuttled Citi three decades ago could be repeated. It is impossible to forecast the probable form of the next systemic breakdown. This dilemma leaves Congress and regulators with one more question: can the money collected to bail out banks that have taken risk on their trading desks be used if those banks buy Japanese sovereign debt that defaults?

Douglas A. McIntyre

Douglas A. McIntyre

The ISM index was at 59.6% compared an expected 57.5% consensus estimate. A PMI in excess of 42% usually indicates the overall economy is expanding.The figure was the best monthly report in six years. But, the report shows that inflation may have begun to creep into the general economy, something that the Fed has assured the public was unlikely.

Seventeen of the 18 manufacturing sectors covered by the survey expanded.  The chief of the Institute of Supply Management, Norbert J. Ore, said, “The manufacturing sector grew for the eighth consecutive month during March. The rate of growth as indicated by the PMI is the fastest since July 2004. Both new orders and production rose above 60 percent this month, closing the first quarter with significant momentum going forward.”

The greatest strengths in the report were increases in new orders–up 2%, supplier deliveries–up 3.8%, and production–up 2.7%.

But, the indications of inflation were unmistakable. The ISM data showed prices across the sectors surveyed were up 8%. Nineteen of the 20 commodities followed were up in their cost to manufacturers, including most metals–aluminum, copper, and ore, and diesel fuel. The price increases may be mitigated in future reports because economists found no shortages of any commodities.

Fed monetary policy, which is set to keep interest rates at .25% and often less, is supposed to keep the ability of the economy to expand as high as the agency can make it. However, the ease with which money can flow into the system at such low interest rates has raised ongoing concerns, even among some Fed Governors, that demand for goods and services may rise to fast fueling inflation. The March PMI figures give that theory some support.

Douglas A. McIntyre

Bank Stock (Ticker)                     Close    (drop and %)       Volume
Downey Financial Corp. (DSL)      $2.03 (-$1.87; -47.95%)   3,663,566   
FirstFed Financial Corp. (FED)     $10.04 (-$8.21; -44.99%) 1,972,956
Corus Bankshares Inc. (CORS)    $3.75 (-$1.05; -21.88%)    993,442
Bank of Granite (GRAN)               $4.50 (-$1.58; -25.99%)    65,354
National City Corporation (NCC)    $3.71 (-$1.28; -25.65%)    326,015,615
BankUnited Financial (BKUNA)     $0.79 (-$0.21; -21.00%)   1,200,562
Vineyard National Bancorp (VNBC)$1.10 (-$0.28; -20.29%)   81,173 

There were also several REIT and other non-bank financial stocks that performed worse than some of these, but these were the banking related names that tanked after WaMu became Shamu.

Jon C. Ogg
September 27, 2008

Cramer doesn’t think a rate cut is going to bail out the homebuilders entirely, but he still wouldn’t short them now.  He likes the banks, but the theory and the moral hazard is great for many many stock.  If you want a review of Cramer’s fairly recent stock pick lists that he is still positive on many of the stocks, here are some of the stock lists and brief explanations:

Here is his list of TOP 9 PICKS FOR 2007
Here is his "New Four Horsemen of Tech"
Here is his Mortgage Madness Portfolio
Here are his Top China Picks
Here are Warren Buffet Stock Reviews in 10 stocks and then 10 more
Here are his numerous picks from the fantasy football stocks…Running Backs… Tight Ends… Quarterbacks…. Defensive Linemen…

Cramer also gave several other stock picks in his second segment on MAD MONEY.  But he gave his key telecom pick being AT&T (NYSE:T) because of its higher dividend and growth ahead.  He thinks it is savvy and will grow cautiously and it trades at 12-times earnings with an upswing coming.  Being the sole iPhone distributor is only helping and he thinks wireless data revenue is going to be massive.  Cramer also interviewed the CFO, Richard "Rick" Lindner, who said wireless is hitting on all cylinders with margins actually growing.  The CFO also said video is now over 100,000 customers and they have over 1 million satellite.

Other picks that Cramer noted earlier today were Downey Financial Corp. (NYSE:DSL) and FirstFed Financial (NYSE:FED).

Jon C. Ogg
September 19, 2007

Yesterday the Federal Reserve injected liquidity into the financial system twice yesterday.  Today the Federal added $19 Billion buy buying mortgage-backed securities.  The amount tendered was $31 Billion and that $19 Billion is what was accepted.  The Fed also left the window open again, and I believe they can step in twice more if they choose to.  But this tender is interesting because this gets those mortgage backed securities off the books of some chartered banks.  The bad news is that if you assume that these are Freddie-Mac or Fannie-Mae conforming loans and gave them an average home loan face of $250,000.00 this represents only 76,000 homes if you wanted to look at this on a nominal face value basis.  I admit that this is not how the real calculations are made, but it is a very loose representative figure that can put some things in perspective.  A Billion dollars just isn’t what it used to be.  But this is a start.  It probably isn’t enough by the tone, but nonetheless it is a start.

What is interesting is that the malaise yesterday gave the chance for a September meeting rate cut at 100% and some are pointing that Fed Fund futures are showing that there is basically a 100% chance of an emergency rate cut.  We have spoken with numerous traders, analysts, and a good old fashioned economist this week.  The verdict is that the liquidity crunch and credit issues need to be fueled right now rather than actual rate cuts that further weaken the greenback.  A rate cut won’t actually help a subprime borrower that is inverted in the housing price that no longer qualifies for a mortgage even at a 2% rate.  The credit criteria has tightened to the point that some more housing pain has to come either way and there probably won’t be any solid fix for some of the funny money mortgages.  This liquidity will help the institutions right here and right now.  Sometimes protecting the system rather than all the participants is more important, and this is one of those instances.  The pain is not yet over, but if this continues it will minimize the fallout and will lower the chances of a collapse in the financial system. 

Now for the real question: Is this a $500 Billion problem, or is it a $3 Trillion problem to fix?

Jon C. Ogg
August 10, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.