I’ve read a lot of articles about the financial meltdown in the United States and elsewhere, about the credit collapse and the rise of systemic risk, etc. — but few of them have contained a paragraph that is as telling as the one below, which is from a New York Times front-page feature on the crisis and its origins, and how the damage has spread:

On a snowy day two years ago, the school board in Whitefish Bay, Wis., gathered to discuss a looming problem: how to plug a gaping hole in the teachers’ retirement plan.

It turned to David W. Noack, a trusted local investment banker, who proposed that the district borrow from overseas and use the money for a complex investment that offered big profits.

“Every three months you’re going to get a payment,” he promised, according to a tape of the meeting. But would it be risky? “There would need to be 15 Enrons” for the district to lose money, he said.

The board and four other nearby districts ultimately invested $200 million in the deal, most of it borrowed from an Irish bank.

How on earth did we get to a point where a school board in small-town Wisconsin comes to the conclusion that in order to bolster its retirement plan, it should borrow tens of millions of dollars from an Irish (but really German) bank and then invest it in a complex, hedge-fund style investment? In what kind of world does that sound like a sensible thing to do?

Recently installed Time-Warner CEO Jeff Bewkes is apparently kicking ass and taking names over at the struggling media and entertainment giant, talking about cutting costs by 15 per cent and restructuring the conglomerate’s cable division — but for some unfathomable reason, he still can’t bring himself to say that TW is planning to dump the declining AOL Internet access business. All he will say is that the company is splitting AOL into the access business and the content business, so as to “increase the strategic choices” available to the company.

Strategic choices? At this point, the only strategic choice for Time-Warner when it comes to AOL is the choice between whether to use a .45 pistol or a shotgun to administer the killing blow. I realize that when you’re a big-time CEO running a gigantic corporation with many moving parts, you can’t just come out and say “We are selling this dog,” but come on — everyone has to know that this is coming, right? AOL has been shedding subscribers by the millions every quarter for as long as I can remember. The access business is dying, and the body has already begun to smell bad.

If anything, the death of the access unit is the easy part. Sell it for parts to an income fund or someone who wants to play the declining margins game, and then move on. But the content business is a bit more problematic, as Cynthia Brumfield wisely points out at IPDemocracy. Although the shift from walled garden to free and advertising-supported content has been a relative success for the company — in the sense that advertising revenue has been growing — it still hasn’t come close to making up for the revenue that AOL gave up by making the shift.

It’s only one sentence in a long quarterly report (the so-called 10-Q) filed with the U.S. Securities and Exchange Commission, but it says a lot about Google’s financial picture going forward (the full filing is here). The sentence says:

“The annual rate of growth in 2006 of our spending on property and equipment will be substantially greater than the annual rate of growth of our revenues.”

In other words, costs are going up and revenues — not so much. The search giant blames costs for the giant server farms that it is building (including the two or three that are under construction on the banks of the Columbia River, which the New York Times wrote about awhile back) as well as increased “cash compensation” for its employees. Apparently all those math geniuses need more than just free candy.