AIG

[quote author="alan" date=1221651916][quote author="No_Such_Reality" date=1221646739]Isn't this really a "we'll keep you afloat long enough to gut you and make good on your debt" plan?</blockquote>


That's what it looks like and I sure hope it's that. I don't want my tax dollars saving Wall Street high rollers. I'm still not convinced the government should be doing this. Somehow CDS need to be properly regulated and sellars of insurance on CDS need to maintain proper capital, something AIG didn't do.



Oh, and for revsionist historians. What would have happened if Chrysler hadn't been bailed out. BK, managment and unions out, vultures could have picked up the plants for a song, hired new workers at favorable terms, <strong>made better, cheaper small cars that could have competed with the Asian imports. GM and Ford would have had to reacess their business plans.</strong> But now the big three are asking for $50 billion handout. I say don't do it.</blockquote>


That's exactly what happened. Don't you remember the Taurus?



What is wrong with Detroit is the UAW has kept the Big Three bent over, and strapped to thier pension and health care programs, which are obsolete everywhere else in the US economy. It's hard to overcome $1500-2000 in pension/healthcare burden per car.



Same with the legacy airlines. The new ones have a younger work force who cost less in the pension/healthcare arena.
 
The problem was how many times is AIG leveraged in Credit Default Swaps ?

15 times. I have heard up to 30 times.



You have a 60 Trillion Credit Default Swaps market that is un regulated that would

collapse if AIG was to fail and unwind its CDS positions.



The Government is doing all it can to keep the CDS Genie in its bottle.

Because when its released. Thats the GIANT unknown factor.



Kind of like Musical Chairs. They just keep the music playing.

Cause when it stops. There are way too few chairs and the damage will

be beyond anything we can envision.
 
[quote author="tmare" date=1221649167]Probably a stupid question... BUT.. Our insurance company, 21st Century, was recently bought by AIG and I'm wondering what happens to our car insurance should the company go under. Our policy expires in January, so its not a lot of money but I'm just wondering.</blockquote>


That's what I'm wondering. I'm thinking since it's insurance you should be OK, I think the Fed will probably sell them off? In the end probably the only thing you will suffer from is a lack of consumer confidence. More customers for Allstate, Geico and the like.
 
Here is a good explination of the Credit Default risk and AIG.



This will help you understand why this company was not allowed to fail.



<a href="http://news.goldseek.com/GoldSeek/1221672153.php">http://news.goldseek.com/GoldSeek/1221672153.php</a>



Letting 60 Trillion unwind is a little more complicated

than the subprime and housing mess.
 
Former Fed Governer Wayne Angell was on Fast Money tonight. I do not drink Koolaid lightly, but I think he gets it.



<a href="http://seekingalpha.com/article/96024-panic-on-wall-street-fast-money-recap-9-17-08">http://seekingalpha.com/article/96024-panic-on-wall-street-fast-money-recap-9-17-08</a>



<blockquote>Wayne Angell, a former Federal Reserve governor, joined the traders to discuss the balance sheet of the Fed. He told viewers that he is very comfortable with the Fed's actions. "The Fed's balance sheet is infinite and it can expand," he said. Angell pointed out that the Fed is simply acquiring assets during a stressful time, almost like Resolution Trust Co. "In doing that, they're going to make money," he said. He said the Fed doesn't have to turn the assets around quickly, but if it can get a premium for those assets, it will sell.</blockquote>


I'm not making light of this situation. The Fed is doing exactly what it's supposed to. We can have the argument about the hows and whys they exist/for whom they exist/who benifits/who pays later.
 
[quote author="no_vaseline" date=1221738452]Former Fed Governer Wayne Angell was on Fast Money tonight. I do not drink Koolaid lightly, but I think he gets it.



<a href="http://seekingalpha.com/article/96024-panic-on-wall-street-fast-money-recap-9-17-08">http://seekingalpha.com/article/96024-panic-on-wall-street-fast-money-recap-9-17-08</a>



<blockquote>Wayne Angell, a former Federal Reserve governor, joined the traders to discuss the balance sheet of the Fed. He told viewers that he is very comfortable with the Fed's actions. "The Fed's balance sheet is infinite and it can expand," he said. Angell pointed out that the Fed is simply acquiring assets during a stressful time, almost like Resolution Trust Co. "In doing that, they're going to make money," he said. He said the Fed doesn't have to turn the assets around quickly, but if it can get a premium for those assets, it will sell.</blockquote>


I'm not making light of this situation. The Fed is doing exactly what it's supposed to. We can have the argument about the hows and whys they exist/for whom they exist/who benifits/who pays later.</blockquote>


Amazingly, I will have to agree. I think the FED and the taxpayers will end up making a killing on this. It's just like any other vulture fund out there right now swooping in on the deals. They just have the capacity to buy in bulk like no one else, and they will sell at a profit like the RTC did. And, I am all for less government intervention, but this screams deal of the decade if you really know what they are holding.
 
<em>and gave a bunch of private bankers the right to control the money in the United States of America. Socialism at it?s finest. </em>



As you describe it, that's not <a href="http://en.wikipedia.org/wiki/Socialism">socialism</a>. Your description more fits <a href="http://en.wikipedia.org/wiki/Privitization">privatization.</a>
 
[quote author="graphrix" date=1221745096]

And, I am all for less government intervention, but this screams deal of the decade if you really know what they are holding.</blockquote>


Except does anybody know what they are holding?



I think they should have bought it, I think they are doing the right thing. I think they should be a little more punative on the execs, literally kicking their dumb ass to the curb. No goldenchutes.



I was just seeing CNN, wall street is still whining. They want some new agency created to come and take all the bad instruments out there like with the S&L.



That would be bad. Very bad. Cause ultimately, the FED may or may not make money on AIG, but sooner or later, somebody is holding all those mortgages from the last three years that are worth half of what they say they are.



Whether it's the mortgage itself, one of the MBSes or the insurance CDS or synthethic CDS, somebody, somewhere, needs to eat the $250,000 that is being lost on the typical Orange County home and the $100,000 or so on the typical American home.
 
[quote author="EvaLSeraphim" date=1221776799]<em>and gave a bunch of private bankers the right to control the money in the United States of America. Socialism at it?s finest. </em>



As you describe it, that's not <a href="http://en.wikipedia.org/wiki/Socialism">socialism</a>. Your description more fits <a href="http://en.wikipedia.org/wiki/Privitization">privatization.</a></blockquote>


Wikipedia is wrong.
 
Query:



If the notional value of the total outstanding credit default swaps is not the real value of total CDSes because so many are hedged with another counter CDS, why are the government, Federal Reserve, and banks so intent on not letting AIG go into bankruptcy?





AIG wrote trillions of dollars "worth" of CDSes. So what? If those CDSes are hedged with counterparty risk like everyone is saying, let AIG go. If the notional value of those contracts is an exaggeration of the real payout, then why is everyone so intent on saving AIG?





Answer: (yes, it was a rhetorical question)



Because when the counterparty to a hedged CDS cannot pay, the notional value of that CDS is ZERO! Goose eggs! $0! ZILCH! NADA! And if the hedge is worth zero, then the primary's notional liability is the real full liability.





And most, if not all, CDSes are not payable in full at term or event, but rather incrementally payable at partial and progressive event.





Per the IMF, the notional value of CDSes outstanding right now is over 1,000 trillion dollars, maybe 1,200 trillion or 1.2 quadrillion dollars.





The last time the financial system almost collapsed was August of 2007 with the collapse of Bear Stearns. And it was because BSC was not there to make incremental payments on it's CDSes. All of a sudden, the hedged CDSes were no longer hedged and there was a rush for collateral to cover. That was the result of a few billion of CDSes going to zero. AIG is counterparty to a few trillion.
 
Must Read:







<a href="http://www.rollingstone.com/politics/story/26793903/the_big_takeover/">The Big Takeover</a>
 
[quote author="awgee" date=1237962194]Must Read:



<a href="http://www.rollingstone.com/politics/story/26793903/the_big_takeover/">The Big Takeover</a></blockquote>


Ahh! and this is why I posted once that a <em>possible</em> solution to the problems is WWIII or end of America as we know it via revolution.
 
[quote author="awgee" date=1237962194]Must Read:







<a href="http://www.rollingstone.com/politics/story/26793903/the_big_takeover/">The Big Takeover</a></blockquote>
Great, great article...thank you for posting it up. It really summarizes things nicely. I really do fear that this CDO/CDS crack may bring the world down to its knees. Interesting how so few had/have so much power. I think the next financial stock shoe to drop is GE.
 
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