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Old 03-07-2009, 05:26 PM   #21
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To let them go, is essentially to break contract law.
Can you explain this a little more? As I see it, the US government doesn't have to bail out AIG--the insurance business and their finance bets are their own. They took a stupid risk (it doesn't matter that it was a a sub-group or even one guy--they would surely have kept he money if they'd "won" and it was their job to oversee their business). If the business fails, it fails. It seems to me that this is the best way to uphold contract law and to re-afirm the responsibility of businesses to check their greed and perform due diligence.
Then, as a separate issue, once AIG has failed or somehow survived, the government can look around at the harmed parties and decide if any of them deserve compensation from the government. Not through AIG, but directly. I'd say the policyholders come first--and the government may even have some responsibility to provide some restitution if the government's oversight of AIG's (government-regulated) insurance business was faulty. Similarly, the government might choose to provide some partial restitution to other parties (foreign national banks?) as a political gesture ("you got burned, you shouldn't bet with your citizen's money, you knew these contracts were not guaranteed by the US. We owe you nothing. However, we realize that you deal with US companies because of their transparency and because of the stability of our financial system, and we want to maintain that goodwill. Here is a check for 25% of your losses--take it or leave it, and agree to release the remnants of AIG from further claims if you take it. You wouldn't get an offer this generous from any other government on earth.")
Most stockholders and bondholders--tough luck. That's how we maintain trust in the system.
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Old 03-07-2009, 07:58 PM   #22
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I think your split is correct. I'd "wall off" the insurance companies from the finance company. I expect that the (regulated) insurance companies are doing fine and their policyholders aren't at risk. There's no question whether the finance company is under water. The question is just which of the finance company's creditors you want to bail out.
Ok, just another thought on this.

AIG is an insurance mammoth. It's tentacles go all over the world, and nothing runs or works without insurance, it is essential.

If you were to break contract with those who bought swaps, the lawyers would come out of their caves, and do whatever they can to freeze AIG assets. AIG would be cash frozen. Claims would go unpaid. Panic would set in big time.

I believe this would preclude AIG commercial insurers from operating normally. Freight would not leave harbor , planes would not fly, businesses all around the globe would come to a halt. Nothing in business moves without someone to share the risk. AIG's reinsurance arm would come to a halt, thus affecting other insurers who may very well pull back from the market. Their frozen position would spread throught the insurance industry.

Yes there are other insurers, but to transfer the capacity of countless policies from AIG to carriers would stall things, there arent enough people just to do the paper work, everything would simply come to a halt.
The amount owed by AIG for swaps is unknown, but it is probably very significant. AIG would essentially take over the paper and pay out the cash on face value of paper. Then they have to sort out the paper to find what the real loss is. Another thing that could take years and years.

What I just explained would not be told to the public so as not to set off a panic, as commercial insurance, or lack thereof on a massive scale would only make things worse.

How do I know this, I was a bean counter for the State working with Insurance for over 25 years. I also saw how the insurance industry was set up to work with derivative products, something unheard of before, but that is another story.

jug
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To let them go, is essentially to break contract law.
Old 03-07-2009, 08:34 PM   #23
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To let them go, is essentially to break contract law.

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To let them go, is essentially to break contract law.
I think the clarification here is that "to let them go" is to break the contract. That is not breaking the law. Many contracts anticipate that they will not be fulfilled by one party or the other and spell out the consequences. Breaking a contract is a civil matter. It is not "breaking the law" as in a criminal matter. It is also entirely a matter among the parties to the contract. If I have a contract to pay you $1,000 to mow my yard and after you mow my yard I don't pay you, you are not entitled under the law to go to a third party and expect them to pay you on my behalf. A court may order me to pay you but if I can't or won't pay the court won't pay you for me.

Same with AIG.

You and I have no obligation to make third parties whole in their business contracts.
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Old 03-08-2009, 01:48 AM   #24
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I think the clarification here is that "to let them go" is to break the contract. That is not breaking the law. Many contracts anticipate that they will not be fulfilled by one party or the other and spell out the consequences. Breaking a contract is a civil matter. It is not "breaking the law" as in a criminal matter. It is also entirely a matter among the parties to the contract. If I have a contract to pay you $1,000 to mow my yard and after you mow my yard I don't pay you, you are not entitled under the law to go to a third party and expect them to pay you on my behalf. A court may order me to pay you but if I can't or won't pay the court won't pay you for me.

Same with AIG.

You and I have no obligation to make third parties whole in their business contracts.
I believe what is going on behind the scenes is very serious business going into the many billions of dollars. Lawyers for the contract holder, banks, hedge funds, other insurer, big time players are ready at the gun to go to court and freeze billions of assets thus freezing massive insurance operations. This is all behind the scenes.

Treasury is simply paying AIG the billions in order to pay these third parties in the belief that the freezing of AIG insurance operations would have a devastating effect on whatever the hell is insured big time by AIG.

The fight here is for the assets of AIG, those who bought Mort backed Secs insured them and they want their money, big time. That is where this "bailout" cash is going, Bernanke said it, but won't name the beneficiaries for fear of angering even more the American people. It's all becoming very clear what is goiing on here.

It was layed on the table behind closed doors that operations the ability to pay claims by AIG would be frozen. This would keep many airlines from flying, many ships from not going to sea, much trade would grind to a halt, making things worse.

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Question US, Europe Banks Get Cash From AIG Rescue: Report
Old 03-08-2009, 12:46 PM   #25
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Question US, Europe Banks Get Cash From AIG Rescue: Report

US, Europe Banks Get Cash From AIG Rescue: Report - Financials * Europe * News * Story - CNBC.com

This is a Medusa-like swindle.

You point to one head and another rises up behind you.

First we were told the financial structure of the planet collapsed because a house-keeper in San Diego making $25,000 per year was given a $500,000 mortgage. End of story.

Then it was the derivative market.

Then it was the cost of energy.

The it was because no one was using energy.

Now it's because AIG would not be able to insure the airlines.

It's the old shell and pea game.

Meanwhile the American people are being reduced to impoverished wage-slaves while billions goes to parties that Bernanke won't disclose.

I am puzzled by your position that this all seems perfectly logical.

?

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Old 03-10-2009, 12:19 PM   #26
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US, Europe Banks Get Cash From AIG Rescue: Report - Financials * Europe * News * Story - CNBC.com

This is a Medusa-like swindle.

You point to one head and another rises up behind you.

First we were told the financial structure of the planet collapsed because a house-keeper in San Diego making $25,000 per year was given a $500,000 mortgage. End of story.

Then it was the derivative market.

Then it was the cost of energy.

The it was because no one was using energy.

Now it's because AIG would not be able to insure the airlines.

It's the old shell and pea game.

Meanwhile the American people are being reduced to impoverished wage-slaves while billions goes to parties that Bernanke won't disclose.

I am puzzled by your position that this all seems perfectly logical.

?

Yeah, as you think about and see how these MBS products crept into every facet of commerce around the world, how AIG stuck it's assets out insuring MBS, reserved for real stuff such as trains, planes and other goodies, whereas a tsunami came all at once knocking out the MBS in one fell swoop, it does indeed become a Medusa set of heads as you say.

Just because you have a severe problem, doesn't mean that it can be fully comprehended by one mind, you need to sit with a huge blackboard and draw all the affected parties emanating from the mortgage meltdown, which is essentially the center of this plague.

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Old 03-10-2009, 02:12 PM   #27
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I believe what is going on behind the scenes is very serious business going into the many billions of dollars. Lawyers for the contract holder, banks, hedge funds, other insurer, big time players are ready at the gun to go to court and freeze billions of assets thus freezing massive insurance operations. This is all behind the scenes.
I always thought that one of the primary reasons big firms run their businesses through multiple companies is to avoid this scenario. If one company goes under, its creditors can't reach the other companies.

I'm sure with billions at stake you can hire lawyers who can find creative arguments why this general rule doesn't apply in this case, but if I'm the gov't I'm trying to keep the walls in place. I don't know if they are doing that.

Like you say, they could be arguing this out behind the scenes and we don't get to see what's happening, that's very frustrating because they're spending my money while they are arguing, and because I'm not sure that the gov't people are really representing me.
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the mortgage meltdown, which is essentially the center of this plague.
Old 03-13-2009, 01:38 PM   #28
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the mortgage meltdown, which is essentially the center of this plague.

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the mortgage meltdown, which is essentially the center of this plague.

jug
If that were true the solution is painfully obvious and cheap compared to what it has cost so far.

How much would it cost to pay every single PAYMENT of every single mortgage that went into default during 2008 and 2009 for the months that are in default through the end of 2009? I'm not saying buy the whole mortgage at face value today. Just make the payments that are missing through 2009?

It would cost a teensy-weensy amount compared to what the taxpayers have been robbed of so far.

The problem is derivatives and LEVERAGE.

35 to 1 leverage is great when the market is going up. People were taking home 100's of millions per year in personal wealth. THEY STILL HAVE IT ALL!!!!

35 to 1 leverage on a ten billion portfolio of derivatives is very bad when the derivative drops in value just 10% - let alone 30-40%.

Ooops! We're now, let's see, billions in the red! TAXPAYER!!! Troubled asset over here! TAXPAYER!!! Troubled asset! Ben, Hank? Ahhhhh! Thanks, guys!

See you in St. Barts!
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Wasn't Hank Paulson's firm a big investor in AIG?
Old 03-16-2009, 01:29 AM   #29
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Wasn't Hank Paulson's firm a big investor in AIG?

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Wasn't Hank Paulson's firm a big investor in AIG?
We are just bailing out his cronies.
"The US Government" to which you refer is really just a helpless pawn in this operation.
A.I.G. Lists Firms It Paid With Taxpayer Money
By MARY WILLIAMS WALSH
Among the biggest recipients were Société Générale, Deutsche Bank and Goldman Sachs, all of which were owed money from credit default swaps.

http://www.nytimes.com/2009/03/16/bu...e.html?_r=1&hp
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Old 03-16-2009, 08:44 AM   #30
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Any business or individual that is "propped up" or supported by others will tend not to act as responsibly as those that are not. This is human nature, and therefore also business nature. Not a 100% correlation, but percentage wise, it will certainly show a strong relationship.

With things like FDIC and govt backing of the banks, this "crutch" was there for years. With the promise of govt. "help" so goes the fiscal responsibility. The banks are no different than the average joe, or the wealthy investor. The govt is doling out the money, and everyone has their hands out.

This is what I would LOVE to see the govt do. Ok... you want the taxpayer's dime to bail you out for a home you could not afford, or an investment property you were over extended on? Ok... fine.... you get your one time bailout, but you must sign a legally binding document that states that you are never allowed to own property again in the US. I wonder how many would take up the govt on their offer then?

To my way of thinking, a person claiming to have been "confused" by the conditions of their loan etc, are essentially admitting they are not intelligent enough to own their own home. So fine... you will be relieved of your burden, but you will not be allowed to make that mistake again. Considering that others are being forced (via taxes) to pay for your error. Remember, owning a home in the US is just like driving a car, it is a privalege... and NOT a right.
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Old 03-16-2009, 09:35 AM   #31
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If that were true the solution is painfully obvious and cheap compared to what it has cost so far.

How much would it cost to pay every single PAYMENT of every single mortgage that went into default during 2008 and 2009 for the months that are in default through the end of 2009? I'm not saying buy the whole mortgage at face value today. Just make the payments that are missing through 2009?

It would cost a teensy-weensy amount compared to what the taxpayers have been robbed of so far.

The problem is derivatives and LEVERAGE.
Yes, you are right, but the leverage and derivatives DERIVE from the sour mortgages that are not performing up to snuff. Keep in mind, it is a swap, when the MBS goes beyond the threshold stated in the swap contract written by AIG, AIG pays face value of the bond/mbs, and the bond/mbs is then given over to AIG. Thus AIG eventually has to cash in swap at a later date to determine the actual lose. The immediate payout is 100 cents on the dollar, but the bond may be worth say 60 cents when it all shakes itself out.

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Old 03-16-2009, 03:21 PM   #32
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Cuomo wants them to "name names" by 4PM TODAY. Hey, this guy is serious.

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In a letter to CEO Edward Liddy, Cuomo said he's been investigating AIG compensation arrangements since last fall and would issue subpoenas at 4 p.m. EST Monday if he didn't get the names of employees scheduled for bonuses plus information about their work and contracts.
N.Y. AG Wants Answers On AIG Bonuses - CBS News
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but the leverage and derivatives DERIVE from the sour mortgages that are not performi
Old 03-18-2009, 07:59 AM   #33
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but the leverage and derivatives DERIVE from the sour mortgages that are not performi

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Yes, you are right, but the leverage and derivatives DERIVE from the sour mortgages that are not performing up to snuff. Keep in mind, it is a swap, when the MBS goes beyond the threshold stated in the swap contract written by AIG, AIG pays face value of the bond/mbs, and the bond/mbs is then given over to AIG. Thus AIG eventually has to cash in swap at a later date to determine the actual lose. The immediate payout is 100 cents on the dollar, but the bond may be worth say 60 cents when it all shakes itself out.

Jug

Correcto-mundo!

Credit Default Scams Swaps are insurance policies. Companies that write them collect a premium when they sell them. Then they use the premium income to pay co-conspirators executives hundreds of millions of dollars per year in personal income because they make the company so much money!

Hello, St. Barts! Hello, Hatteras Yachts. Hello, St. Moritz!!!!

Then when the insured "dies" and it is time to pay the shell corporation holding the insurance policy (even though it has no "insurable interest" ) ... "We just noticed that our underwriters forgot to underwrite."

Hello, United States taxpayers!!!!

[And if you don't bail us out, these nuns will starve! ]
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Old 03-18-2009, 08:58 AM   #34
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Correcto-mundo!

Credit Default Scams Swaps are insurance policies. Companies that write them collect a premium when they sell them. Then they use the premium income to pay co-conspirators executives hundreds of millions of dollars per year in personal income because they make the company so much money!

Hello, St. Barts! Hello, Hatteras Yachts. Hello, St. Moritz!!!!

Then when the insured "dies" and it is time to pay the shell corporation holding the insurance policy (even though it has no "insurable interest" ) ... "We just noticed that our underwriters forgot to underwrite."

Hello, United States taxpayers!!!!

[And if you don't bail us out, these nuns will starve! ]
Ya know, I think the big deal of these bonuses is a smoke screen to deflect the sheeple away from the real problem, i.e, "who the f--k was greased to allow AIG sell this crap?"

These so called executives, who are being hounded by the likes of Schumer, Frank and the rest of the operatives in the Capital Hill Honey Ranch, are scapegoats. They are akin to street hookers being picked up and thrown in the clink whilst the real illegal action is at Honey Hill in DC.

These guys were just sales people in the AIG Division that was set up to sell the swaps like hotcakes with the blessing of the boys in NYC headquarters. Of course the boys don't go to jail, Hank G and his sons, and other operatives are the real culprits.

The media loves this crap, it sells air time, but they do cover the asses of the real operatives who are tied together with the media. They even own the media!!!!! They have diner together, Hank Greenbug, Paulson of Goldman "Sacks", Thain (Jerry Mahoney dummy), Rupert Murdoch (has nice babes on his fxbn network), Mort Zuckerman (daily snooze) among others can be found at some obscure steakhouse laughing their asses off, whilst America burns. They have Schumer and Frank on the case, to cover their asses, what a wonderfull wonderful world.

jug
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Old 03-18-2009, 10:12 AM   #35
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Ok, if you wall off the insurance products, then you have the Swap contracts that cannot be paid by the little AIG sub that sold them. These contracts are with large banks (European, American and Asian), investment thieves (goldman and the boys), hedge funds, pension funds, etc.

To let them go, is essentially to break contract law. A big problem, since it may be the right thing to do for the people, but cheapens the concept of contracts going forward. It sets a precedent that will haunt international commerce for decades, with no trust. Sort of like investing in a country, and taking a big chance that your factory will be nationalized when the locals feel they need your facilities when times get tough.

Our whole commerce system is based on contracts and trust.

You see the problem they have, and this cannot even be politicized, since it is a business problem, with the ingredient of trust most important.

What to do?
jug

Sorry, I missed this response when you posted it.

My thought is that every bankruptcy "breaks contracts". That's the whole point. You owe people money that you don't have to pay. Bankruptcy is a fully integrated part of our system, but allowing bankruptcy creates moral risk.

OTOH, having the gov't decide to step in and bail out the creditors of a company that should be going bankrupt could be even worse. It creates more moral risk. It also creates uncertainty - when and why will the gov't throw money at creditors again?

I think we're in a no-win situation. Congress exempted this type of insurance from normal insurance regs, allowing AIG to run the oldest type of insurance scam. The huge firms that bought the insurance have told us in other contexts that they are amazingly sophisticated investors, but now they want us to bail them out - they shouldn't be responsible for their own actions.

I think the law allows AIG to protect the traditional insurance subs from proceedings against the finance sub, so I'm not so worried about ships not moving. (We've got some posters who know a lot more about bankruptcy than I do. Maybe one of them will clarify this.)

If that's correct, then I think SamClem's ideas make sense. It's not a pretty picture, but it's the least bad way out of this that I can see.
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Old 03-18-2009, 11:08 AM   #36
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Sorry, I missed this response when you posted it.


I think we're in a no-win situation. Congress exempted this type of insurance from normal insurance regs, allowing AIG to run the oldest type of insurance scam. The huge firms that bought the insurance have told us in other contexts that they are amazingly sophisticated investors, but now they want us to bail them out - they shouldn't be responsible for their own actions.

I think the law allows AIG to protect the traditional insurance subs from proceedings against the finance sub, so I'm not so worried about ships not moving. (We've got some posters who know a lot more about bankruptcy than I do. Maybe one of them will clarify this.)
Ok, firstly, Insurance is regulated by the States, not the fed. No state in my knowledge would allow this credit default swaps to be sold by AIG.

So, AIG after Glass-Stegall was knocked out by the Graham-Bliley disaster, set up a financial services arm. Now insurance companies can dabble in banking and securities, formerly forbidden under Glass Stig. This essentially allowed these three different businesses, tightly regulated to sort of merge and comingle with each other. Remember Citi with Travelers?

OK, so the financial arm is basically unregulated and they call their product "credit default swaps" to avoid calling it insurance. Out of the realm of the ability of state insurance regulators to control. So basically no one controls them, they are based in Conneticutt, but sell their product out of London. No one can touch, no one knows what they are doing, the Sec is impotent, the fed bank of ny is useless, no one knows what is going on or wants to know or is sure of what to even do.

All of this is observed by a few people in the know who view this follie and warn the world of what is to come, but is ignored by the regulators, since the regulators are not sure of what they regulate anymore.

Ya got me so far?

Now in retrospect, this was all set up this way purposely primarily by wall street to tap into the banking and insurance industry and sell and trade derivatives emanating from their products. In order to do so, you weaken any regulations impeding this three way marriage. Wall street is like a vampire, they look for products to sell, look for anything to package and peddle and suck them dry. You following me camera guy?

Ok, also in order to do this you have to "grease" the political wheels to weaken the regulations and permit the marriage of the holy trinity of wall street, banking and insurance. Wall street is the vampire here, remember that.

Payoffs are made to certain politicos, the mantra of "deregulation" is touted throughout the land, saying regulation impedes the brave new world that is to come and you make sure that the Sec, the NY Fed bank, and others do not have adequate staff to oversee the "blood sucking" walls street perpetuates on the banks and insurers.

So there you have it.

Jug
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Old 03-18-2009, 08:27 PM   #37
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Jug - I generally agree with this post. I don't see that it addresses the question of "What to do next?" I'd like to believe there is a position we can take that's between letting AIG drop to the floor and guaranteeing 100 cents on the dollar to every one of their creditors. I can't say that I'm sure this intermediate position works, but I haven't seen it discussed anywhere in the MSM.
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Old 03-18-2009, 08:40 PM   #38
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What I don't understand is -- even if we manage to save these clowns with bailouts, who's going to want to do business with them in the future? And if no one does, won't they go belly up anyway?
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Old 03-19-2009, 12:13 AM   #39
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Ya know, I think the big deal of these bonuses is a smoke screen to deflect the sheeple away from the real problem.
Indeed! The 100 Million in bonuses makes good press but it's the trillions that have been dumped into someones black hole that really gets me riled.
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Old 03-19-2009, 02:44 AM   #40
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Jug - I generally agree with this post. I don't see that it addresses the question of "What to do next?" I'd like to believe there is a position we can take that's between letting AIG drop to the floor and guaranteeing 100 cents on the dollar to every one of their creditors. I can't say that I'm sure this intermediate position works, but I haven't seen it discussed anywhere in the MSM.
The only thing to do is pay off the swaps. It is insurance, and the contract says, "If the MBS/CDS goes down in value or doesnt perform, then I get the face value, AIG gets the bond. See. It's like you buy a car, drive it out of the showroom, and it gets wrapped around a pole. You get what you just paid, the insurer gets what's left of the car, if the insurer balks, that is a big no no in insurance land.

There is no other way out. AIG also is a big viable company. It's like you own a very successful Italian restaurant, nothing can go wrong, and your nephew takes the deed of the restaurant and puts it on the roulette table, well ya gotta pay off. bada bing.

So the treasury has to pay this off, the financial arm of AIG that sold this crap did not have anywhere near adequate reserves to handle any sort of large amount of claims. It's like an auto insurer having every car they insure being totalled in one night. Or a home insurance company having every home near the florida shore being totalled in a force 5 hurricane. It's a wipe out, but the bill must be paid.

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