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To: Rarebird who wrote (39029)	8/16/1999 6:53:00 AM
From: Rarebird	Read Replies (2) \| Respond to of 116927

FLECKENSTEIN: Why General American's troubles matter... The last couple of days I have been mentioning some of the events taking place at General American Life Insurance and its affiliate, Reinsurance Group of America. The reason I have suggested it might make a difference, is because of what types of activities got them into trouble. Today I got a fax from Charles Peabody of Mitchell Securities, who is absolutely top notch and most likely the best financial company analyst on Wall Street. I want to share with you quotes from his facts on this subject. His suspicion is that there will be a lot more fallout from this prospectively, and this could be a catalyst for some even bigger revelations down the road. "Yesterday ( Wednesday ) General American Life Insurance Co. announced that it was facing material withdrawals by institutional investors and that it was temporarily unable to meet such demands. Despite this shocking news of a potential default, the marketplace rallied the financial stocks strongly. And today ( Thursday ) the rally continues as old rumors of further financial services consolidation surface. "Please do not be lulled into a false sense of complacency by this tape action. The GenAmerican Corp. news will prove to be as important to 1999 as the news of the demise of David Askin was to 1994. Each event came out of the blue but heralded a much bigger problem down the road. In 1994, those bigger problems included a default by Orange County and severe losses on interest rate swaps at Bank One. "My point is that the discovery process, both with respect to GenAmerican itself as well as to the general interest rate risks within the system, is still ahead of us. This discovery process should expose the seedier side of the derivatives market, as well as the complicitous nature of Wall Street in enabling the greed and deception to bloom unabated. "The discovery process at General American Life Insurance Co. should include the following: - The primary bankers to this insurance operation is the old Nationsbank ( now Bank of America [BAC-$62-SELL] ) . This relationship should surprise no one as BAC is increasingly surfacing as the lead bank of more and more shakier credits. - The major underwriters of securities for this insurance operation include Morgan Stanley Dean Witter ( MWD-$87 ) , Goldman Sachs ( GS-$62 ) and Donaldson Luftkin & Jenrette ( DLJ-$46 ) . These firms may prove to be complicitous in the creation of the firm's current problems ( just as Merrill Lynch and others were implicated in the problems in Orange County ) . In addition, the equity analysts at each of these shops should be exposed as "cheerleaders" as their bullish commentary on the related companies ( e.g. Conning Corp. [CNNG-$11] and Reinsurance Group of America [RGA-$33] ) over the past six months came in the face of obvious signs of trouble. I believe their benign approach to this company's budding problems was conflicted by the plans for this company to convert from a mutual holding company into a publicly traded stock company. IN other words, no one wanted to lose out on the possibility of lucrative equity underwriting fees. It was only ( coincidentally? ) after the company publicly acknowledged its shortcomings ( and the possibility of an IPO died ) that these analysts cut their "BUY" ratings. - There may even be shades of Orange County in this story. I believe that, as the discover process unfolds, the city and county of San Francisco could be shown to have taken excess risk with taxpayers' money in an effort to earn slightly higher returns. - Finally, this story, when the final chapter is written, could show that some of the most respected firms ( American Century/J.P. Morgan [JPM-$125-SELL], Fidelity Management, Frank Russell and Van Eyck ) were all scrambling to set up joint ventures or other business partnerships with this company in an effort to generate incremental revenues in the investment management process." Let's see if Charlie is right and all this turns out to be the start of a larger problem. Regardless of the ultimate outcome, all of you who own G.I.C.s in your 401K plans may want to review who issued them. stocksite.com