Advice on fixing water damage

[Eigenvector]

I'm extremely glad that I decided to rewire my basement and install insulation and redrywall. It allowed me to find all the nasty traps hidden in the basement and it explains a lot of the stuff I see.

My problem is that I found one corner with water damage, not horrid damage, just a corner where the plywood is soft and it also happens to coincide to the place where my gutters aren't working. I also found an insect infestation - nothing horrid, but I wonder if I found a nest of cockroaches or simply a bunch of beetles. I suspect beetles, as I don't see the smaller casings that a cockroach would leave. I also found a bunch of ants hiding out with the beetles and the most vile looking spider I ever saw. They all took a trip down the shop vac tube before I got a chance to take a photo of them - so I wasted that opportunity to ID them.

But here is what I'm faced with

the corner is question. The chalk line denotes the edge of the soft plywood. Should I fill the gaps in the corner with caulking, should I apply an insect treatment first?

not sure if that's insect damage or a funky 2x4 - like where the bark was.

assuming that's where the insects are coming in from. I presume the window was installed after the framing was put in, that might explain why the foundation is like it is only under the window.

plywood is pulling away from the studs, is that a problem or normal for a house. Would filling the gap with caulking prevent further infestations?

[Joseph Meehan]

First you fix the gutter, then you let everything dry out. Make sure you fix the cause before working on the result. You can work on the insects while doing that. You also need to replace the plywood. Doing it right now will make it a lot cheaper in the long run.

Funky 2x4

Insects will always find a way in. Eliminate what they want moisture food etc, and you will eliminate the insects.

No.

[Eigenvector]

I knew you were gonna say that. Damn, why does the worst one always have to be on the most out of reach gutter? Probably because the other owner didn't want to fix it either I assume?

How would you replace the plywood - remove the siding on that particular location? That'll be a fun job in the pouring rain.

[Joseph Meehan]

So that is an exterior wall. I don't know why I was thinking it was a basement.

I would be tempered to let it dry out, use some bleach on it and make sure there is no mold there. If it is reasonable stable at that time, I might just close it up as is. However when it comes time to re-side or do any other repairs there, I would do the replacement. Likely I would try to get it done with the next painting.

[Eigenvector]

It is a basement, well... an above ground basement. The basement was added on after construction, as the house sits half-way over a hillside. The owner simply dug the hillside out square and poured a foundation for the basement. So 2/3rds of the basement is above the ground. The corner in question is about 18" off the soil, but it's also exactly where the downspout runs.

The idea is to put in insulation then drywall it back up, I just don't want to do that if there is a danger the buggies will get back in and nest in the fiberglass.

Hmmm, I might still have to take the siding off, so that I can seal that window up properly.