Earlier this year, I did a blog entry looking at how financial innovation had led to the meltdown.

As the New York Times points out, the basic problem with the models built around mathematics, computing and statistics is that they ignored the human factor. "In recent years, the securitization of the mortgage market, with loans sold off and mixed into large pools of mortgage securities, has prompted lenders to move increasingly to automated underwriting systems, relying mainly on computerized credit-scoring models instead of human judgment. So lenders had scant incentive to spend much time scrutinizing the creditworthiness of individual borrowers."

What's even more scary, the piece points out, is that economists said the risk models used by Wall Street analysts correctly predicted that a drop in real estate prices of 10 or 20 percent would imperil the market for subprime mortgage-backed securities but the analysts assigned a very low probability to that happening.

All the sophistication in the world could not beat arrogance.

How much does bribery cost a company? Siemens has announced it has set aside 1 billion Euros ($US1.3 billion) to settle the case with authorities in the United States and Germany.

"The company will make no further comments on the ongoing proceedings." the Siemens statement says.

That sort of money would have to affect its earnings but Theo Kitz, an analyst in Munich at Merck Finck told Bloomberg the money allocated was less than expected. "The number is probably pretty much exactly what they will have to pay. The SEC part would be less than 1 billion when you subtract the German part. That really is less than expected.''

In other words, the company is getting off lightly.

Less than two weeks ago, I did a blog entry looking at how AIG was chewing up that $123 billion loan extended by the US taxpayer.

Now, The Wall Street Journal tells us that AIG is about to get a bigger package. The worrying part is that we don't yet know what will happen with those credit default swaps, the derivatives that brought the whole thing crashing down.

"The government may be betting that its involvement will encourage AIG's trading partners to sell the securities tied to the CDS contracts to the new entity. Once it holds the securities, AIG could cancel the credit default swaps and take possession of the collateral it had posted to back the contracts. The total collateral at stake is about $30 billion. It may also have some unintended consequences across the markets. For the plan to work, AIG's trading partners - the banks and financial institutions that are on the other side of its credit-default-swap contracts - may have to agree to any changes in the terms of their agreements with AIG. The agreements may be difficult to work out. Some financial institutions that face AIG in credit-default swaps don't actually hold the physical securities on which they purchased protection. A second vehicle would be set up to solve the liquidity problems in AIG's securities-lending business. The business involves lending out securities to short sellers or others and investing the collateral for gains. AIG has labored to unload illiquid assets in order to give back the collateral it accepted. AIG's exposure to the securities-lending market forced it to seek a $37.8 billion loan from the government to cover its commitments. Under the new plan, the government is expected to inject about $20 billion into the securities lending vehicle, with AIG providing an additional $1 billion. The entity would then buy the illiquid securities the AIG unit holds, known as residential mortgage-backed securities, for about 50 cents on the dollar. AIG would use the proceeds to shut down the $37.8 billion lending facility which it has not yet fully tapped."

This can go two ways. The Government might make some money if the assets recover. But if the US housing market stays in the toilet, the assets won't recover and US taxpayers will be footing the bill.

Henry Blodget at Clusterstock sums it up well: "As if this latest insult - $40 billion of new taxpayer money and relaxing of the orginal debt terms - weren't enough, what really chaps us about AIG is that the original shareholders still have $2 of value per share ($6 billion), and the original debtholders are still whole. Why? Why should US taxpayers continue to foot the bill without the shareholders getting wiped out and the debtholders at least getting nicked?"

Back in the Depression, there were people jumping out of buildings after learning they had lost everything. Are we going back to that?

Former Bear Stearns executive Barry Fox committed suicide when he discovered he wouldn't be hired by J.P. Morgan Chase & Co., which was about to buy his firm. The Bear Stearns collapse broke his spirit.

But could this be a sign of things to come? Now there are warnings that the meltdown is likely to produce more executive suicides. And there is anecdotal evidence that it's on the increase.

Earlier this week, I said that an Obama administration would have to bring in a massive fiscal stimulus to try and kick start the US economy. But of course, that's only one item on the to do list for someone who comes into office at a time when the US economy is in the grip of its most severe recession since Roosevelt, when the US is entangled in two wars going nowhere, and when it is confronting the rise of China, the threat from Islamist terrorism and the proliferation of weapons of mass destruction, along with the threat of climate change.

How is going to spend the $700 billion bailout package and how the hell will it be financed when it inflates national debt and nationalizes a substantial element of the US economy? Will he raise or lower taxes? Will he expand banking regulation to other investment instruments? What will he do about oil dependency?

That's why Obama's to-do list, published in the New York Times makes important reading.

Apart from the stimulus package, he will have to stop more home foreclosures, changing the bankruptcy laws to allow judges to reset mortgages. Expect more protectionism but addressing the apartheid-style health care system in the US, and energy reform, will have to go on the back burner while the economy is in meltdown. Expect to see the automakers and tech industry clamoring for favors.

MarketWatch provides insights into how an Obama presidency will affect US taxpayers. We might well see him removing the tax on unemployment benefits and allowing people to make withdrawals from retirement plans. And energy companies might be on his hit list although the collapse in the price of oil might make that a moot point.

Another sign that hard times are well and truly upon us with Toyota announcing that it has slashed its earnings by more than two-thirds, or 69%. Look at the numbers carefully. In the first half, it expects its net income to decline 68% to about $5.6 billion for its fiscal year, but it also expects that year-end revenue will decline 12.5% to $234 billion.

Equally as alarming is Toyota's announcement that there will be 673,000 fewer vehicles being produced.

The scary part is that this is the world's most profitable automotive firm. It's scary because what does that say about weaker companies like Ford and General Motors?