Western Delusion - Food Version

As an Asian, and Malaysian, I can safely say that as a whole, we take pride in our food. Because of that, what I read this morning was simply appalling, enough to ruin any Malaysian's appetite.

In a list of the top 20 restaurants IN THE WORLD, you will notice that there is not a single restaurant based in Asia. This is coming from a publication that calls itself the "Elite Traveler". I don't know what is so elite about the Elite Traveler that it does not have any palate for food in Asia. I can only wonder if the writers at Elite Traveler have ever been to Asia.

For starters, in order to qualify as one of the top 20 restaurants in the world, I think one of the main criteria has to be the taste of the food. I must say that as subjective as tastes may be, it is shocking to see that not a single Asian restaurant is listed in the top 20.

Of course you can start throwing in things like ambiance, the waiter's manners and so on and so forth. Still, accounting for all that, statistics would suggest that there should at least be one or two restaurants in Asia that should be in the list of top 20, if not 15-16.

The only "consolation" that an Asian can get is that there is ONE Japanese restaurant on that list, and it is ranked 13th.

This is coming from a country that is well known for bad food.

Photo Credits: The Food Ninja

Volume 4 Issue 12: Intelligent Investing

Gambling Like A Value Investor

For those of you who think this is a shortcut or a method to break a casino by playing blackjack, I say, "Run, you fools!"

This is a story of a man who "broke" Atlantic City by winning USD6 million in a 12-hour run. Before the run at Atlantic City, he also took Borgata for USD5 million and Caesar's for USD4 million. 

On the surface, many of us would marvel at Don Johnson's skill at playing blackjack. One or two of us may even be inspired to try our hand at becoming good at blackjack. But as the article says, Don Johnson is very far from being a top-notch blackjack player, whatever that means. 

No matter how skilled you are, the odds of a blackjack hand are still around 50-50. And anyone who knows anything about gambling must certainly know about the Gambler's Ruin. Basically, it is a probabilistic concept which governs any betting scenario, even ones that have positive expectations (which means, the player has a higher probability of winning a hand compared with the banker). So here are some possible outcomes of what this Gambler's Ruin is all about:

• The original meaning is that a gambler who raises his bet to a fixed fraction of bankroll when he wins, but does not reduce it when he loses, will eventually go broke, even if he has a positive expected value on each bet.
• A gambler with finite wealth, playing a fair game (that is, each bet has expected value zero to both sides) will eventually go broke against an opponent with infinite wealth.

If you are curious about the reasons, just go ahead and click on the link provided above. Yes, that's right. The odds are highly stacked against the player simply because the casino's wealth is approaches "infinite" when compared with a typical player like you and me (or we call, "the Main Streeters")

So the only logical conclusion on how Don Johnson defeated the three casinos must be because he had more wealth than the casinos. Or is it? Here is how I see it. 

1. Skill

First, it goes without saying that Don Johnson is no fool. He may not be the best blackjack player in the world, but he is a good enough player. If you asked Warren Buffett if he is the smartest man on the planet, he would be the first person to tell you that he isn't. Like investing, blackjack does not require a lot of smarts. Just simple mathematics. So, armed with a slightly mathematically inclined mind, Don Johnson was ready to break the casinos. 

2. Wealth

Second, Don Johnson is a high roller. This means that he has millions and millions to spare, which is to say, the gap between his wealth and that of the casino, is significantly narrowed. As a result, the probability of the gambler's ruin being applied to Don Johnson is much much lower compared with a Main Streeter.

3. Margin of Safety

Third, Don Johnson applies one of the most fundamental rules in value investing. He keeps a huge margin of safety. If you get through far enough in the long article, you will see this:

Johnson is very good at gambling, mainly because he’s less willing to gamble than most. He does not just walk into a casino and start playing, which is what roughly 99 percent of customers do. This is, in his words, tantamount to “blindly throwing away money.” The rules of the game are set to give the house a significant advantage. That doesn’t mean you can’t win playing by the standard house rules; people do win on occasion. But the vast majority of players lose, and the longer they play, the more they lose.


Sophisticated gamblers won’t play by the standard rules. They negotiate. Because the casino values high rollers more than the average customer, it is willing to lessen its edge for them. It does this primarily by offering discounts, or “loss rebates.” When a casino offers a discount of, say, 10 percent, that means if the player loses $100,000 at the blackjack table, he has to pay only $90,000. Beyond the usual high-roller perks, the casino might also sweeten the deal by staking the player a significant amount up front, offering thousands of dollars in free chips, just to get the ball rolling. But even in that scenario, Johnson won’t play. By his reckoning, a few thousand in free chips plus a standard 10 percent discount just means that the casino is going to end up with slightly less of the player’s money after a few hours of play. The player still loses.

But two years ago, Johnson says, the casinos started getting desperate. With their table-game revenues tanking and the number of whales diminishing, casino marketers began to compete more aggressively for the big spenders. After all, one high roller who has a bad night can determine whether a casino’s table games finish a month in the red or in the black. Inside the casinos, this heightened the natural tension between the marketers, who are always pushing to sweeten the discounts, and the gaming managers, who want to maximize the house’s statistical edge. But month after month of declining revenues strengthened the marketers’ position. By late 2010, the discounts at some of the strapped Atlantic City casinos began creeping upward, as high as 20 percent.

“The casinos started accepting more risk, looking for a possible larger return,” says Posner, the gaming-industry expert. “They tended to start swinging for the fences.”

Johnson noticed.

“They began offering deals that nobody’s ever seen in New Jersey history,” he told me. “I’d never heard of anything like it in the world, not even for a player like [the late Australian media tycoon] Kerry Packer, who came in with a $20 million bank and was worth billions and billions.”

When casinos started getting desperate, Johnson was perfectly poised to take advantage of them. He had the money to wager big, he had the skill to win, and he did not have enough of a reputation for the casinos to be wary of him. He was also, as the Trop’s Tony Rodio puts it, “a cheap date.” He wasn’t interested in the high-end perks; he was interested in maximizing his odds of winning. For Johnson, the game began before he ever set foot in the casino. 

So how did all these casinos end up giving Johnson what he himself describes as a “huge edge”? “I just think somebody missed the math when they did the numbers on it,” he told an interviewer.

...

Johnson did not miss the math. For example, at the Trop, he was willing to play with a 20 percent discount after his losses hit $500,000, but only if the casino structured the rules of the game to shave away some of the house advantage. Johnson could calculate exactly how much of an advantage he would gain with each small adjustment in the rules of play. He won’t say what all the adjustments were in the final e-mailed agreement with the Trop, but they included playing with a hand-shuffled six-deck shoe; the right to split and double down on up to four hands at once; and a “soft 17” (the player can draw another card on a hand totaling six plus an ace, counting the ace as either a one or an 11, while the dealer must stand, counting the ace as an 11). When Johnson and the Trop finally agreed, he had whittled the house edge down to one-fourth of 1 percent, by his figuring. In effect, he was playing a 50-50 game against the house, and with the discount, he was risking only 80 cents of every dollar he played. He had to pony up $1 million of his own money to start, but, as he would say later: “You’d never lose the million. If you got to [$500,000 in losses], you would stop and take your 20 percent discount. You’d owe them only $400,000.”

In his own words, this is the very essence of the concept of "margin of safety". Being a high roller, he twisted and twisted the odds in his favor, banking on the desperation of the casinos for his "business". With a 20% discount, the odds were already heavily stacked in his favor. And note this: 

“You’d never lose the million. If you got to [$500,000 in losses], you would stop and take your 20 percent discount. You’d owe them only $400,000.”

He never plays until he goes broke. In essence, what he is saying is, every time he loses money, he would only lose 80%. But every time he wins money, he would win 100%. Essentially, even though at each hand, the game was 50-50, his expectations of winning are significantly higher. 

For those who are interested in the mathematics, His expected "earnings" for each dollar he brings into the casino are simply:

0.5 x (-0.8) + 0.5 x (1.0) = 0.1

What this means is that he is expected to make a return of 10% every time he goes to the casino. This is of course, assuming that he does not go broke, which goes back to my second point about having a huge bankroll to begin with. How many of us can have that kind of odds at a casino? 

4. "Luck"

Fourth, another point which is also one of the key concepts of value investing is what many of us think of as, "luck". But as the Roman philosopher Seneca says, "luck" is when preparation meets opportunity. Given his circumstances (i.e. being adept at simple arithmetic, and having the bankroll to play, along with an acute interest in gambling (how else would he know about such negotiating tactics?), he was presented with a "wonderful" opportunity in the sense of the casinos' desperation. The casinos were too desperate to make a quick buck of a big whale like Don Johnson and took more risk than they could truly afford by granting him all the tiny tweaks that he requested. If the casinos had not been suffering due to the recession in the US, this sort of opportunity would not have presented itself. 

5. "Greatness"

Fifth, and what I think is the most important of all, is what I termed "greatness", for the lack of a better term. I am not saying that Don Johnson was born great or anything like that. To me, having good "luck" is awesome, but it is very far from being enough. Don Johnson had the right skill set, the money to play, and the opportunity to take advantage of. But what separates Don from the rest, is the fact that he TOOK that opportunity. Some of us may call that balls of steel, guts, courage, instinct or what not, but I really don't care. I don't know the right term for it.

The key important thing here is the fact that he took advantage of an opportunity which presented itself in the midst of one of the greatest recessions since The Great Depression. This is one of the most important lessons I have learnt recently in my life, and I will most certainly write more on this in the future. 

But for today, the takeaway message from this issue of the Main Streeter is that the concepts of value investing applies just as well in other aspects of life. Think of value investing as a lifestyle. It is not necessarily just applied in the realm of investing, but it can be applied in any shape and form in pretty much every aspect of our lives. 

Volume 4 Issue 11: Intelligent Investing

Quarter-Life Crisis

Speaking to numerous people, I realize that this is a very little known phenomenon in my part of the world. I had no idea that there was such a thing as a quarter-life crisis until I met my good friend Kate, who was also one of the key people who gave me the opportunity to attend Bucknell University.

When she first explained it to me, I gave the same reaction every one else now gives me when I bring it up. An initial chuckle, followed by a smile that says, "Indulge me", as if the next few sentences that we were about to hear would be absurd and utter nonsense. I have briefly mentioned the quarter-life crisis before (here and here), but I never really talked about what it really is.

The link I gave above puts it quite accurately. Here it is again, with some extract:

It is when you stop going along with the crowd and start realizing that there are a lot of things about yourself that you didn't know and may or may not like. You start feeling insecure and wonder where you will be in a year or two, but then get scared because you barely know where you are now. 

You start realizing that people are selfish and that, maybe, those friends that you thought you were so close to aren't exactly the greatest people you have ever met and the people you have lost touch with are some of the most important ones. What you do not realize is that they are realizing that too and are not really cold or catty or mean or insincere, but that they are as confused as you. 

You look at your job. It is not even close to what you thought you would be doing or maybe you are looking for one and realizing that you are going to have to start at the bottom and are scared.

Kate told me that she had wished someone had explained this to her when she was around my age back then. We had this conversation back in 2008, during my final year at Bucknell. I was also in the midst of transitioning from college, and wandering aimlessly into adulthood, which is better known in these parts of the world as "the working life".

Now, five years later and two-cents wiser, I think I am in a better position to connect the dots, as Steve Jobs would put it. To many of us, it is many of his innovations like the iPod, iPhone or iPad that changed our lives. To me, it is none of that. I don't find any of those products any more revolutionary than the next portable electronic device. To say that smartphones would not have been invented if not for Steve Jobs would be committing a non sequitur fallacy.

To me, Steve changed my life with "Stay Hungry, Stay Foolish". It was the core motivating factor that helped me get past my quarter-life crisis.

So, in connecting the dots five difficult years later, I still don't see a paradigm shift.

And my only regret was that I had not discover this blog sooner:
Penelope Trunk

An even bigger regret is that I did not share it sooner. It is quite safe to say that it is one of my all-time favorite reads. Here are some potentially life-altering highlights:

Living Up To Your Potential
How To Know What To Look For
Co-Workers Change Your Life
Stop Thinking You'll Get By On Your High IQ
Career Change Looks Like Halloween

Initially, I had intended to summarize each post but then I just read through all of them and I realized that it would be a great injustice to each and every one of the posts and more importantly, an even greater injustice to all the readers who would have just read the summary and skipped the posts entirely.

So I have decided to meet you halfway and leave the rest to you. Good luck on your quarter-life crisis.

Volume 4 Issue 10: Intelligent Investing

Spanish La Liga 2011/12 Craziness

Just to prove that life is not just about the grind, I do keep up with football news, especially about the La Liga. Every one knows that the La Liga has been a two horse race since as far as most of us can remember. But just some quick insane trivia. Just look at the GD column. For the uninitiated, it stands for Goal Difference, which is the difference between goals scored and the goals conceded.

The goal difference of 69 by Real Madrid or 62 by Barcelona may mean nothing to you but if you compare it relatively, the next closest competitor has a goal difference of 9. This means that Real and Barca are able to win by a goal margin of about seven times more than their closest opponents.

On average, Real wins by a goal margin of 2.4 goals per game, while Barca wins by an average goal margin of 2.1 goals per game.

It is not shown in the table, but in the 29 games played, Real has scored 95 goals this season, which is an average of 3.3 goals per game. Barca has scored 84 goals, which is an average of 2.9 goals per game.

Delving deeper, at this stage, Cristina Ronaldo (aka diver, pussy, etc) has scored 35 of her team's 95 goals, which translates to 36.8% of Real's goals. Lionel Messi has also scored 35 goals, which translates to 41.7% of Barca's goals.

And also, just a tribute to Messi, I'd like to congratulate him for becoming the highest all-time scorer for Barcelona, and here are 234 of his goals in 12 minutes.

More Reactions To Greg Smith of ex-Goldmanite Fame

Here is pretty much every reaction there is on the market on reactions towards Greg Smith leaving Goldman Sachs in a very public manner. 

And here is Tyler Cowen's thoughts on the matter:

Everyone is talking about the Goldman guy who quit, he wrote this (reactions here):

"I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival. It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are. 

Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons." 

This strikes me as economically naive. Is it at least possible that the culture at Goldman has changed (I am not myself committing to any assessment here of GS) because profit maximization dictates such a shift? What are a few possible models? 

1. Income from trading has risen in importance, relative to income from clients, and if you can do well trading you will make money, whether or not you are a jerk. 

2. Greater competitiveness lowers levels of service quality for efficiency wage-like reasons. GS can no longer play the role of high mark-up, precommit to high-quality, monopolist. 

3. We have moved to the “used car” equilibrium. You know they are screwing you over, or trying to, but leaving for the guy next door simply replicates the same basic incentives so you stay put and fight back best you can. 

4. The current interest rate spread means they don’t have to try too hard. 

Anything else? Those are possible mechanisms, not factual claims about the world. In any case, I am suspicious of his impulse to blame it all on a sudden shift in the moral propensities of the people he was working with.

More People Have Phones Than Toilets In India

Despite cellphone boom in India, toilet access still lags - The Globe and Mail: 

"The “houselisting census” asked 246.6 million households a wide range of questions from what their walls were made of to whether they had a radio. Results are now out, and the survey found that 63.2 per cent of households said they had a telephone connection – that’s up from 9.1 per cent a decade ago, and the increase is due almost entirely to the rise in cellphone ownership."

However only 53.1 per cent of Indian households have access to a toilet – either one in their own home or in a shared toilet block. Less than one in three rural Indians has access to a toilet. 

UNICEF says that 640 million Indians are still “open defecators” – people who relieve themselves in fields or next to railway tracks – a figure that remains high despite hikes in government spending on sanitation projects. Local governments have tangled those projects in corruption and bureaucracy, and even in places where toilet blocks are built, people have been slow to adopt use of the new facilities.

More On Greg Smith Quitting Goldman Sachs

In my previous post, I shared a little about the op-ed that is now the talk of town. In fact, the issue is being analyzed to the death even as we speak. As I had shared, there was also a parody made from it. Here is another piece of analysis by Felix Salmon from Reuters:

Clients know in principle that every time they do a trade with Goldman, Goldman makes money. But they don’t know how much money Goldman makes on those trades. And Goldman is extremely good at structuring deals which can’t easily be replicated by combining various liquid derivatives. In turn, that gives Goldman pricing power — so much power, indeed, that in some instances the bank will go so far as to insist that if the client attempts to get independent pricing for the contract in question, then the whole deal is off. 

Smith has been in this business for 12 years, and he’s done extremely well by it. And to a certain extent, if the people who work for him are constantly asking how good a deal is for Goldman, rather than how good the deal is for Goldman’s clients, then that’s because of the example he set. What’s missing in his op-ed is any sense of mea culpa, any sense that he was at all part of the problem.

There’s a strong smell of faux-naive coming from Smith’s op-ed. “Leadership used to be about ideas, setting an example and doing the right thing,” he writes. “Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.” Here’s a question for him: back when he made videos for Goldman urging candidates to join the company, were the people who got promoted those who had ideas and did the right thing? Or were they the ones who made lots of money for the firm? To ask the question is to answer it.

Apart from the serious ones, here is a chart from Alphaville which is more lighthearted in nature (Click to enlarge):

Volume 4 Issue 9: Intelligent Investing

Being An Investment Banker - Part 4

First and foremost, I would just like to throw it out there that I am far from being dead. This is by far my longest absence in the last two years. I will explain why in the near future, but until then, here are some pickings from the recent weeks.

I have written before about the tough lives of investment bankers (here, here and here) and also about the fat paychecks.

Just a couple of days ago, an ex-employee at Goldman Sachs wrote an op-ed in the NewYork Times, exposing a glimpse of what he thought was a toxic culture that was prevalent at Goldman, which I am sure could be easily extrapolated to other investment banks on Wall Street:

“To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for. 

It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.”

Yeah, if you think that investment banking has always been a cutthroat business, well, it’s not. “Teamwork, integrity, a spirit of humility, and always doing right by our clients” may sound like a bunch of hogwash now, but investment banking was borne out of a need to match savers with creative people who are in need of funding. And Goldman Sachs was the defender of the bullied back then, and far from being the bully. If you don’t believe me, read “The Culture of Success”. It is a well-written documentation full of insights into Goldman Sachs’ history from its inception until its IPO in 1999.

With the huge readership of the New York Times, nothing less than a furore was expected from the public as well as Wall Street. For starters, there is parody of the op-ed going around with Darth Vader choosing to leave the Empire.

The op-ed even got a reply from the CEO, Lloyd Blankfein, and President, Gary Cohn:

In a company of our size, it is not shocking that some people could feel disgruntled. But that does not and should not represent our firm of more than 30,000 people. Everyone is entitled to his or her opinion. But, it is unfortunate that an individual opinion about Goldman Sachs is amplified in a newspaper and speaks louder than the regular, detailed and intensive feedback you have provided the firm and independent, public surveys of workplace environments.

Blankfein goes on to admit that Goldman Sachs is not perfect, and is working on improving its culture, if you believe him:

We are far from perfect, but where the firm has seen a problem, we’ve responded to it seriously and substantively. And we have demonstrated that fact.

I don’t know what to make of this statement. From an analyst’s standpoint, it appears to be intentionally vague. They have definitely responded to “this problem” by issuing this reply as damage control. I don’t necessarily see a sense of true self-reflection, realization and most importantly, repentance. Forgive me, but it seems very hard to trust a man who claims to be doing “God’s work”.

As for the survey, it is hard to justify a survey result that claims that 89% of the employees at Goldman Sachs are satisfied with the jobs. When a company is filled to the brim with like-minded gold-chasers, it would not be unexpected to see that they are completely satisfied with being where they are. It is merely a diversion from the crux of the matter, which is the toxic culture at Goldman. Job satisfaction was never in question at Goldman. The survey should in fact ask, “Why did you join Goldman Sachs?”, and I can bet you a nickel that more often than not, the answer would be something along the lines of “BIG bonuses”.

This culture of seeking big bonuses is now so entrenched that pretty much any worker at Wall Street feels that they are entitled to it. Bonuses are no longer seen as a privilege, but an entitlement. This will be the topic of discussion in the next issue. 

Blast From The Past

Since I have not got around to posting my thoughts on these issues, and some of them are getting a little out of date, I am just going to share the links here for archiving purposes. They are good reads and definitely worth thinking about. 

1. Rise of the Technocrats?

Is the European Union’s supposed “democratic deficit” now spreading to individual European countries in the wake of the sovereign-debt crisis? The rise of unelected technocrats to political power in Greece and Italy suggests, at least superficially, that the old taboo against technocratic governments pursuing an EU-dictated agenda has been shattered.

2. The Philippines - Malaysia's New Competitor?

The Philippines reopened for business under new management only a little more than a year ago. It is faring very well – and is set to become increasingly profitable.

3. Just a chart on the desirability and earnings potential of different college majors in the US

P/S: Anyone else find it shocking the Geology and Earth Sciences is listed under Arts?

4. Why Art majors are being subsidized (refer to No.3 for more)

ALEX TABARROK, a George Mason economist and blogger at Marginal Revolution, notes that though many more young Americans, about 50% more, now go to college than did 25 years ago, the number of students studying science, engineering, technology, or mathematics has not increased. So, Mr Tabarrok asks, "If students aren’t studying science, technology, engineering and math, what are they studying?" They are studying interesting and enjoyable fields, it turns out. Mr Tabarrok reports, with no little dread:

"In 2009 the U.S. graduated 89,140 students in the visual and performing arts, more than in computer science, math and chemical engineering combined and more than double the number of visual and performing arts graduates in 1985."

This is worrisome because diseases go uncured and potential gains in purchasing power are left unrealised as America's apple-cheeked human capital squanders itself staging the "Vagina Monologues". Mr Tabarrok admits there's nothing exactly wrong with young Americans learning how to play the euphonium, he just doubts this fluff is worth subsidizing. Growth-enhancing disruptive innovation doesn't come from villanelles!

"[G]raduates in the arts, psychology and journalism are less likely to create the kinds of innovations that drive economic growth. Economic growth is not a magic totem to which all else must bow, but it is one of the main reasons we subsidize higher education. 

The potential wage gains for college graduates go to the graduates — that’s reason enough for students to pursue a college education. We add subsidies to the mix, however, because we believe that education has positive spillover benefits that flow to society. 

One of the biggest of these benefits is the increase in innovation that highly educated workers theoretically bring to the economy... 

There is little justification for subsidizing sociology, dance and English majors." 

As a consequence, Mr Tabarrok thinks that "the taxpayers who foot the bill for these subsidies" are being ill used.

5. Here is Tabarrok's full post: College Has Been Oversold

6. Why Debt Is Not The Real Problem in Greece, But Competitiveness Is

7. One Year in Prison Costs More Than One Year at Princeton

More Brain Drain

I don't think I need to say much more about this as it is common knowledge by now. This is just another classic example of the effects of brain drain in Malaysia:

Malaysia-born Ren Ng is revolutionising photography with his Lytro light-field camera.

The Australian has developed a new technology for the mass market that allows anyone to adjust the focal point of digital photographs after they have been taken, and without having to fiddle with Photoshop or other image-editing tools. 

The hand-sized digital point-and-shot camera looks like a torchlight; its key feature is what the California-based company calls “shoot now, focus later”. 

In an interview with the New York Times last year, Lytro chief executive Ng described the images as “interactive, living pictures” due to their ability to be manipulated. 

The Lytro achieves this trick with a special sensor called a micro lens array, which puts the equivalent of many lenses into a small space.

The camera was listed as Time magazine’s “50 best inventions” in its November 17 edition last year. 

Ren Ng is currently an Australian. One can only wonder what made his parents migrate to Australia when he was nine.

Robbing The Poor To Pay The Rich?

This is exactly what it is:

Last week, the American International Group reported a whopping $19.8 billion profit for its fourth quarter. It was a quite a feat for a company that was on its death bed just a little over three years ago, so sick that it needed a huge taxpayer bailout.

But if you dug into the numbers, it quickly became clear that $17.7 billion of that profit was pure fantasy — a tax benefit, er, gift, from the United States government. The company made only $1.6 billion during the quarter from actual operations. Yet A.I.G. not only received a tax benefit, it is unlikely to pay a cent of taxes this year, nor by some estimates, for at least a decade. 

The tax benefit is notable for more than simply its size. It is the result of a rule that the Treasury unilaterally bent for A.I.G. and several other hobbled companies in 2008 that has largely been overlooked.

This rule-twisting could deprive the government of tens of billions of dollars, assuming the firm remains profitable. The tax dodge — and let’s be honest, that’s what it is — also will most likely help goose the bonuses of A.I.G.’s employees, some of whom helped create many of the problems that led to its role in the financial crisis.