Fed buys AIG (courtesy: the American Taxpayer)

I was watching the news today. A headline topic was the proven link between elevated levels of Biphenol A (BPA) in the urine of the adults studied, and an elevated risk of heart disease and type-2 diabetes (full story). An expert on the show noted that the link was not a chemical one and the exact source of BPA in those tested was not determined by the study. It basically proves that we should avoid ingesting BPA (which we already knew). He recommended consumers minimize drinking from polycarbonate bottles and eating from PC-lined food cans. PC is the very hard plastic used in Naglene bottles. As a rule of thumb, if it isn't hard, it probably isn't PC (look for the number 7 or the label 'PC' in the recycling triangle).

Now for the funny part:
As he said this, images of margarine containers, disposable plastic water bottles and other soft plastic food containers were shown. None of the containers shown were BPA-bearing plastics. In plastics, BPA is only used to manufacture polycarbonate (PC) and as an antioxidant in polyvinylchloride (PVC). The products that were shown are made from polyethylene terephthalate, low/high-density polyethylene, polypropylene and polystyrene (PETE, LDPE, HDPE, PP and PS respectively). Other than PVC, which is not generally used in food/drink items, and PC, none of the other plastics are manufactured using BPA!

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In other news..


[Image courtesy of Clarke]


In exchange for up to $85 million in federal loans, the U.S. government will receive a 79.9 percent equity stake in the company.

According to the press release,

"The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance."

Instead of a disorderly failure, this announcement ensures and orderly failure as the company's assets are slowly liquidated until the loan is repaid. Extremely large free market equities have now received full or partial bailouts from the U.S. Treasury (Freddie Mac and Fannie Mae's saviour), The U.S. Federal Reserve (AIG's saviour), and soon U.S. Congress (General Motors' saviour).

To be precise, Freddie and Fannie were not explicitly free market enterprises. Instead, they were implicitly guaranteed companies otherwise known as GSE's (Government Sponsored Enterprises). This was their fundamental flaw. Investors said they were taught in 'investing school' (whatever that is) that theoretically speaking, the entities had the risk of treasuries but the reward of equities. If that sounds too good to be true, that's because it is and always was. While others share the blame, this structural flaw took the lead in granting so many irresponsible sub-prime loans and now results in a cascading effect we are seeing in financial markets around the world.

All this is meant as a primer for my next topic: The Swinging Pendulum--and while change is good, the swinging pendulum is decidedly not a good thing.