Mover Mike

Derivatives are in the air today and I suspect I will be saying a lot more. First Freddie Mac (FRE) said net income for 2004, would be down 41% because of a $4.5 Billion loss on derivatives.

Then we have AIG! First S&P, yesterday, now Moody's today cut their bond ratings from AAA to AA+ and AA1, respectively, which is likely to make all their businesses more expensive to run.

Paul Newsome, an analyst at A.G. Edwards, wrote in a note published earlier this week: AIG has about $140 billion in financial-services liabilities, commercial paper and debt on its balance sheet, Newsome estimated. Based on that, AIG's funding costs could increase by about $280 million, or 10 cents a share, he explained. The most pain may be felt in AIG's financial-services businesses, which include derivatives (emphasis added), consumer finance and aircraft leasing, Newsome added.

NY Post says

reeling insurance giant AIG admitted yesterday its balance sheet reflected shoddy accounting going back as far as 14 years (and may have to decrease equity by $1.7 Billion!).

James Cramer of The Street.com

Why does it(AIG) deserve a decent multiple? How much of its earnings power was derived from off-the-book transactions? (Derivatives?) Why is the total markdown $1.7 billion? How do we know it isn't $3 billion or $5 billion?

Some have been saying that there is a massive derivative "bomb" in the market, just waiting to go off. In addition, AIG has been a key player in the massive gold manipulation that has been going on for at least the last seven years. Not to be outdone, the SEC has subpoenaed PricewaterhouseCoopers, the auditor of American International Group Inc.; and the US Justice Dept. is involved.

And then there is MBIA! According to Bloomberg

Shares of MBIA Inc., the world's biggest bond insurer, fell by the most in 2 1/2 years after New York Attorney General Eliot Spitzer and the Securities and Exchange Commission sought new information about the company's accounting practices.