Economic Update — AIG Black Hole Eats Billions More

“Too big to fail” has new meaning these days in the context of the never-ending black hole known as American International Group. The “too big” in this case is the insurance giant’s giant losses, which totaled $61.7 billion in 4Q08, a record. Just to give a little context, that much money is roughly equal to or greater than the gross state products of 12 states of the union–Hawaii, for instance, had a gross state product of $61.5 billion in 2007, according to the U.S. Bureau of Economic Analysis.“Public ownership of financial institutions is not a policy goal and, to the extent public ownership is an outcome of Treasury actions, as it has been with AIG, it will work to replace government resources with those from the private sector to create a more focused, restructured and viable economic entity as rapidly as possible,” the U.S. Treasury and the Federal Reserve said in a joint statement regarding the latest infusion into AIG. So effectively owning about 80 percent of AIG, as the federal government does after the latest bailout, doesn’t count as public ownership. But it does quack like a duck and walk like a duck. The equity markets, as might be expected, didn’t take well to the latest AIG news, and the indices went down most of the day. The Dow Jones Industrial Average ended below 7000 for the first time in 11 years, going down on Monday almost 300 points, or 4.24 percent. The S&P 500 was down 4.66 percent and the Nasdaq lost 3.99 percent. Out with the old, in with the new. Two news stories that happened to break at about the same time Monday point to some kind of transition in the U.S. economy, though it’s too soon to say exactly how things will pan out. First, recreational vehicle maker Monaco Coach Corp. mostly shut down on Monday, laying off about 90 percent of its work force. The demand for RVs, especially the high-end RVs that Monaco specialized in, simply isn’t there. According to the Recreation Vehicle Industry Association, sales of RVs were down 25 percent through the third quarter of 2008, and it predicts a similar drop in 2009. In the realm of the green economy, by contrast, the pot is simmering, if not boiling yet. In a deal that has a distinct real estate component, First Solar has bought the project pipeline of Optisolar for about $400 million, paid for with First Solar stock. First Solar is getting a 550-megawatt solar development project, an additional 1,300 megawatts of under-negotiation projects to be built for various utilities in the western U.S., and land rights to about 136,000 acres–210 square miles, or three times the size of Washington D.C.–with the potential to develop about 19 gigawatts of solar-power projects. As of 2007, according to the Energy Information Administration, U.S. solar power generators had a capacity of about 503 megawatts, or only about half a gigawatt.