AIG Saw The Whole Crisis Coming, Perfectly

Perhaps it’s not surprising that AIG (AIG) finds itself at the centre of the storm. As it turns out, nobody saw exactly how this recession would play out better than them.

Early last year, Brendan Connolly of Banque AIG in London painted an extremely dire picture of the world economy.

Here’s Reuters from last February:

“Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit — preferably tax cuts — or restoring overvaluation of equity prices,” Connolly said on Monday.

“If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed,” Connolly said.

Legal changes would be needed to give the Federal Reserve and the U.S. government the authority to buy stocks. Currently the Federal Reserve can buy only debt issued by the Treasury, as well as U.S. agency debentures and mortgage-backed securities.

Gigantic deficits, intentional overvaluation of asset prices, expanding the purchasing power of the Fed. Pretty bang-on, eh?

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