AIG

The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group's financial products unit, to Edward M. Liddy, the chief executive of A.I.G.

Dear Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

You and I have never met or spoken to each other, so I'd like to tell you about myself. I was raised by schoolteachers working multiple jobs in a world of closing steel mills. My hard work earned me acceptance to M.I.T., and the institute's generous financial aid enabled me to attend. I had fulfilled my American dream.

I started at this company in 1998 as an equity trader, became the head of equity and commodity trading and, a couple of years before A.I.G.'s meltdown last September, was named the head of business development for commodities. Over this period the equity and commodity units were consistently profitable — in most years generating net profits of well over $100 million. Most recently, during the dismantling of A.I.G.-F.P., I was an integral player in the pending sale of its well-regarded commodity index business to UBS. As you know, business unit sales like this are crucial to A.I.G.'s effort to repay the American taxpayer.

The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers.

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country's call and you are taking a tremendous beating for it.

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn't defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.

My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That's probably why A.I.G. management assured us on three occasions during that month that the company would "live up to its commitment" to honor the contract guarantees.

That may be why you decided to accelerate by three months more than a quarter of the amounts due under the contracts. That action signified to us your support, and was hardly something that one would do if he truly found the contracts "distasteful."

That may also be why you authorized the balance of the payments on March 13.

At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress.

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It's now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You've now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.'s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.'s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to "name and shame," and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

So what am I to do? There's no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn't disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.'s or the federal government's budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.

This choice is right for me. I wish others at A.I.G.-F.P. luck finding peace with their difficult decision, and only hope their judgment is not clouded by fear.

Mr. Liddy, I wish you success in your commitment to return the money extended by the American government, and luck with the continued unwinding of the company's diverse businesses — especially those remaining credit default swaps. I'll continue over the short term to help make sure no balls are dropped, but after what's happened this past week I can't remain much longer — there is too much bad blood. I'm not sure how you will greet my resignation, but at least Attorney General Blumenthal should be relieved that I'll leave under my own power and will not need to be "shoved out the door."

Sincerely,

Jake DeSantis

The diamond 'overhang'

Responding to the global recession, the De Beers diamond cartel has cut back production at its South African mines and reduced the price of its rough diamonds between 15 and 20 percent. Even so, industry sources in South Africa are now estimating that diamond prices could fall another "59-63 percent." But the real fear of the diamond cartel is not just that retail prices will decline - it has managed that problem before - but that the public will begin to sell its hoard of diamonds, or what is called at De Beers "the overhang."

At the heart of this concern is the reality that, except for those few stones that have been permanently lost, every diamond that has been found and cut into a gem since the beginning of time still exists today. This enormous inventory, which overhangs the market, is literally in - or on - the public's hands. Some hundred million women wear diamonds, while millions of other people keep them in safe deposit boxes as family heirlooms.

De Beers executives estimate that the public holds more than 500 million carats of gem diamonds, which is more than 50 times the number of gem diamonds produced by the diamond cartel in any given year. The moment a significant portion of the public begins selling diamonds from this prodigious inventory, the cartel would be unable to sustain the price of diamonds, or maintain the illusion that they are such a rare stone that their value is, as the ad slogan claims, "forever."

As Harry Oppenheimer, who headed the cartel for more than a quarter of a century, pointed out, "wide fluctuations in price, which have, rightly or wrongly, been accepted as normal in the case of most raw materials, would be destructive of public confidence in the case of a pure luxury such as gem diamonds, of which large stocks are held in the form of jewelry by the general public."

The genius of the cartel was creating this "confidence" in the myth that the value of diamonds was eternal. In developing a strategy for De Beers in 1952, the advertising agency N.W. Ayer noted in a report to De Beers: "Diamonds do not wear out and are not consumed. New diamonds add to the existing supply in trade channels and in the possession of the public. In our opinion old diamonds are in 'safe hands' only when widely dispersed and held by individuals as cherished possessions valued far above their market price."

In other words, for the diamond illusion to survive, the public must be psychologically inhibited from ever parting with their diamonds. The advertising agency's basic assignment was to make women value diamonds as permanent possessions, not for their actual worth on the market. It set out to accomplish this task by attempting through subtly designed advertisements to foster a sentimental attachment to diamonds that would make it difficult for a woman to give them up. Women were induced to think of diamonds as their "best friends."

This conditioning could not be attained solely by magazine advertisements. The diamond-holding public, which included individuals who inherited diamonds, had to remain convinced that the gems retained their monetary value. If they attempted to take advantage of changing prices, the retail market would be chaotic.

Even during the Great Depression of the 1930s, there was only a limited overhang, since the mass-marketing of diamonds had begun only a single generation before the crash. So even though demand for diamonds almost completely abated, De Beers, by shuttering all its mines and borrowing money to buy up the production of the small number of independent mines that still existed, was able to weather the crisis.

Today, however, with many generations of the diamonds it mass-marketed overhanging the market, and most of global diamond production in independent hands, it no longer is in a position to bring supply and demand into balance. Adding to this precarious situation, diamond cutters, manufacturers and dealers, have, as of Feb. 15, an estimated $40 to $50 billion worth of diamonds in mines in the pipeline that will intensify the downward spiral when the gems reach the market later this year.

If falling prices shatter the carefully nurtured illusion that the value of the glittering stones kept in jewel boxes and vaults is eternal, and the public begins selling even part of its hoard, De Beer's nightmare scenario would come true: The overhang would flood the market.

Where is the money?

Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.

• There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.
• B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar.
• The net asset of the country now = 3 dollars.
• Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars.
• A has a loan to C of 1 dollar, so his net asset is 1 dollar.
  B sold his land and got 2 dollars, so his net asset is 2 dollars.
  C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar.
  Thus, the net asset of the country = 4 dollars.
• A saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollars from B and acquired the land back from C for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C.
• As a result, A now owned a piece of land that is worth 3 dollars. But since he owed B 2 dollars, his net asset is 1 dollar.
  * B loaned 2 dollars to A. So his net asset is 2 dollars.
  * C now has the 2 coins. His net asset is also 2 dollars.
  * The net asset of the country = 5 dollars. A bubble is building up.
• B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollars. The payment is by Borrowing 2 dollars from C, and cancellation of his 2 dollars loan to A.
• As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollars.
  B owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with C, his net Asset is 2 dollars.
  C loaned 2 dollars to B, so his net asset is 2 dollars.
  The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation.
• Everybody has made money and everybody felt happy and prosperous.
• One day an evil wind blew, and an evil thought came to C’s mind. "Hey,
  what if the land price stop going up, how could B repay my loan. There is only 2 dollars in circulation, and, I think after all the land that B owns is worth at most only 1 dollar, and no more."
• A also thought the same way.
• Nobody wanted to buy land anymore.
• So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars.
  B owed C 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar.
  C has a loan of 2 dollars to B. But it is a bad debt. Although his net
  asset is still 2 dollars, his Heart is palpitating.
  The net asset of the country = 3 dollars again.
• So, who has stolen the 3 dollars from the country?

• Of course, before the bubble burst B thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper. B’s net asset is still 2 dollars, his heart is palpitating.
• B had no choice but to declare bankruptcy. C has to relinquish his 2
  dollars bad debt to B, but in return he acquired the land which is worth 1 dollar now.
• A owns the 2 coins, his net asset is 2 dollars.
  B is bankrupt, his net asset is 0 dollar. (he lost everything)
  C got no choice but end up with a land worth only 1 dollar
  The net asset of the country = 3 dollars.

End of the story… but…

• There is however a redistribution of wealth.
  A is the winner, B is the loser, C is lucky that he is spared.

A few points worth noting…

• When a bubble is building up, the debt of individuals to one another in a country is also building up.
• This story of the island is a closed system whereby there is no other country and hence no foreign debt. The worth of the asset can only be Calculated using the island’s own currency. Hence, there is no net loss.
• An over-damped system is assumed when the bubble burst, meaning the land’s value did not go down to below 1 dollar.
• When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the losers. The asset could shrink or in worst case, they go bankrupt.
• If there is another citizen D either holding a dollar or another piece of land but refrains from taking part in the game, he will neither win nor Lose. But he will see the value of his money or land go up and down like a see saw.
• When the bubble was in the growing phase, everybody made money.
• If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A) and take part in the game. But you must know when you should change everything back to cash.
• As in the case of land, the above phenomenon applies to stocks as well.
• The actual worth of land or stocks depend largely on psychology.

Indian Swiss Gaurd

This year the Papal Swiss Guard recieved its first non-white soldier, a Swiss citizen born in India.

The Papal Swiss Guard, the army and protectors of the Pope, are unique in many ways. They have the distinction of being the smallest army in the world, the most traditional unit in the world (the only active halberd regiment on earth) and, if I am not mistaken, are the oldest active military unit in the world as well.
Once upon a time Switzerland was well known for having the best infantry in the world, particularly their famous pikemen. With a poor government, and being from a "hands-off" country, everything worked to make the Swiss famous for supplying mercenaries to the many monarchs of Europe, particularly France & The Vatican, though even the British employed them.
The Papal Swiss Guard was first formed in the early 1500's by the famous "Warrior Pope" Julius II. Although 250 Swiss troops were chosen to guard the Pope earlier in the 1400's, the official treaty was not made until the reign of Pope Julius II who signed an agreement with the Swiss cantons of Zurich and Lucerne to provide a body guard for the Pope. Over the years their numbers have been reduced, but the elite standards and devout loyalty of the corps have remained ever constant.
Many people mistakenly assume that the Swiss Guards are simply for "show", marching in their antique uniforms armed only with halberds. However, they are a highly trained, well disciplined military unit and have seen action more often than you would think. Their most famous battle came on May 6, 1527 when Rome was sacked by imperial troops, mostly from Germany (including Protestants) and the Swiss Guard suffered heavy losses fighting to protect Pope Clement VII. Still today, May 6 is a special day for the Swiss Guard, when new members take their oath of loyalty to the Pope. It seems that throughout history, whenever traditional authority was under attack, the Swiss Guard was there. The King of France had his own Swiss Guard who served for 175 years. On August 10, 1792 they fought almost completely to the death to protect the royal palace in Paris from the revolutionary mob, taking a large toll of their enemies with them. Later, in 1798 the Papal Swiss Guard were once again thrown into battle when French troops of Napoleon Bonaparte attacked Rome. A few members of the Swiss Guard escorted the Pope out of the Vatican, but he was eventually captured by the French dictator and died in captivity. However, when the next Pope was finally able to return to Rome, he was greeted by his Swiss Guard, rebuilt with new recruits. Even today, only two decades past, the Guard faced deadly force.
In 1981, in St Peter's Square, Pope John Paul II came under attack by an assassin. Shot in the chest, the Pope was quickly shielded by his Swiss Guard (in plain clothes) as he was rushed to the hospital and the would-be killer was captured. All members of the Swiss Guard study the latest methods of personal security and recognize that, in this age of terrorism, the leader of a billion Christians around the world is a serious target for evil-doers. For over 500 years the Papal Swiss Guard has defended the Pope and the Vatican, and, despite talk of being dismissed by Pope Paul VI, it seems today that they will still be present, 500 years from now, doing their duty for the Church.

'Right Brain- Left Brain' dichotomy

My Brain Usage Profile:
Auditory : 66%
Visual : 33%
Left : 57%
Right : 42%

Rasputin

Rasputin was born in the Tyumen district of Siberia, far away from the glittering salons in the Imperial Capital of St. Petersburg. Even today he is a shadowy and mysterious character; a person of contradictory personality traits. Was he a miracle worker or just a crafty manipulator of the Imperial Family? While he was alive, witnesses, including doctors and skeptics, concluded he possessed some inexplicable power over the Tsarevich and his deadly episodes of bleeding. This mysterious ability to heal her son was enough to convince Aleksandrathat Rasputin, whatever people said of him, must have been sent by God. In her mind he was he the answer to her fervent prayers for God to save her son. It was impossible for her to believe that he could have been a wolf in sheep's clothing. His influence over politics has been greatly exaggerated. Rasputin was a convenient scapegoat for those who wanted to attack the Tsar's appointments and decisions, but who wouldn't confront Nicholas directly
Rasputin was close to the Tsaritsa's closest friend, Anya Vyrubova. Her devotion to him was absolute, which was reinforced after a terrible derailment of the train from Tsarskoe Selo to Petersburg in which Anna was almost killed. Although she survived the accident Anna's condition was so bad her doctors despaired of saving her life; her body was crushed and mangled. Rasputin came to her bedside, stood over Anna as she lay near death. He reached out and held her hand. Dripping with sweat, intensely focused, Rasputin repeated the words, "Annushka, Annushka, rise!". The drama of the moment was incredible. Anna suddenly awoke from her coma, opened her eyes and tried to rise from her bed. It was a miracle. As Rasputin staggered into the next room, he spoke, prophetically saying that although she would live, for the rest of her life Anna would be a cripple. So it came to be.
Rasputin tried to ingratiate himself with other members of the Romanov family, but most of them would have nothing to do with him. Olga, Nicholas sister, resented Rasputin's prying into her private life and rebuffed his offers of spiritual help in her marital problems.
A number of influential churchmen fell for Rasputin early in his 'career' as a holy man. Later, these supporters in the church hierarchy turned on him and attempted to send him away from St. Peterburg. Rasputin cunningly knew how to undermine his enemies in the church and soon had them exiled or in disgrace. A bishop or monk who opposed him might find themself suddenly sent to a remote monastery or far-away episcopal see. In government affairs Rasputin's power was an illusion, although the Petersburg press crowed about his influence over important government appointments. Gossip claimed he had seduced the Empress, her daughters, and Anna Vyrubova as well. These rumors, which reached the highest circles of society where they were deliciously repeated by Aleksandra's foes, drove Nicholas to distraction. The remoteness and isolation of the Imperial Family made it possible for the general public to believe these crazy stories, but the aristocracy knew they were groundless. Still they derived pleasure from seeing Aleksandra's named dragged through the mud. Rasputin made the talk worse by flaunting the Imperial families gifts, letters and the telephone calls he received from Aleksandra asking for his prayers. People believed he had an uncanny control over the Tsar and his wife. Rasputin enjoyed the celebrity status this reputation gave him.
The story of Rasputin's demise is well known. One night in December 1916, Rasputin was invited by Prince Felix Felixovich Yussupov to visit his palace on the Moika Canal. The pretext was the opportunity for Rasputin to meet Felix's wife, Irina, who was a great beauty and niece of the Tsar. Rasputin wanted to meet Irina and was flattered by Felix's attention. Felix claims he had been nurturing a relationship with Rasputin for a number of years before the invitation, although this relationship has never been fully explained. Felix always portrayed his murder of Rasputin as a political act to save Russia. Certainly, Felix had never shown any patriotic leanings before, so his murder of Rasputin is hard to explain from a political standpoint. It may have been there was some other, more personal, reason for Felix's desire to get rid of him. Besides Felix, who was the mastermind of the plot, the Tsar's first cousin and ward Grand Duke Dmitri Pavlovich Romanov, and a member of the Imperial Duma, Vladimir Mitrofanovich Purishkevich, were also involved in Rasputin's killing.