AIG's Latest Bailout Calls for $30 Billion Mor

[jug]

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.

jug

 

[Independent]

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.

 

[Hal3]

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

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!

 

[Hal3]

Wasn't Hank Paulson's firm a big investor in AIG?

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/business/16rescue.html?_r=1&hp

 

[armor99]

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.

 

[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.

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

 

[mickeyd]

Cuomo wants them to "name names" by 4PM TODAY. Hey, this guy is serious.

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

 

[Hal3]

but the leverage and derivatives DERIVE from the sour mortgages that are not performi

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-conspirator[/-]s 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! ]

 

[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-conspirator[/-]s 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

 

[Independent]

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.

 

[jug]

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

 

[Independent]

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.

 

[ziggy29]

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?

 

[Hal3]

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.

 

[jug]

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.

jug

 

[Hal3]

The only thing to do is pay off the swaps

The only thing to do is pay off the swaps.

I have addressed this elsewhere, as you know, but you do not pay off the "swaps"

If you do ... I have a stack of "Toxic Debt" I would like the Fed to buy. I'm fairly certain it is toxic because I printed it up on my old ink jet.

Ye Olde Credit Default Swap​

Caymen Brothers, LLC agrees to pay Hal3​

The sum of:​

100 Billion Dollars and no cents​

If Lehman Brothers goes paws up.​

Such SUM to be paid immediately.​

This CREDIT DEFAULT SWAP is​

UNDERWRITTEN​

by​

CAYMAN BROTHERS, LLC​

Offices in The Cayman Islands, The Guernsey Islands, and Barbados.​

"Basking in wealth since 2004"​

Absolutely, positively, GUARANTEED!​

Tell me exactly how this is different from what you want the taxpayers to buy?

 

[Hal3]

A little bit of clarification may be in order here.

Cayman Brothers, LLC sold about 100 of these policies for one billion each. The price was not that bad, 1% of face value. No one really had any doubts about the firm because they made 100 billion in 2004 when these were first issued. The Cayman Brothers had a bunch of Ferrari's, a huge yacht docked in Monaco, and three G4's so everyone thought the firm was completely Kosher. No one dreamed that they might go under.

Sad, really.

In a way, they are victims as much as everyone else.

Oh well.

About that bailout ......

 

[Hal3]

In a way, they are victims as much as everyone else.

In a way, they are victims as much as everyone else.

If it hadn't been for Maria Ochoa in San Diego buying that $500,000 dollar house even though she made only $25,000 per year and being behind five payments none of this would have happened. No one could have predicted this. The firm would still be alive and well today.

 

[Hal3]

And let's not forget poor Maria!

And let's not forget poor Maria!

Everything was going great at first.

She had a mortgage with negative amortization and low monthly payments of $99 for the first 24 months. Then the rate increased to 11.9% and her payments jumped to about $6,000 per month with taxes, insurance, and escrow. Everyone said, "No problem! We'll just refinance in 24 months! The real estate market in SoCal is crazy!" There was a 36% prepayment penalty also so I guess the mortgage company was planning to cash in a little extra on the refinance as well - plus snagging that negative amortization!

Actually, with a mortgage like that, the mortgage companies would be confiscating Maria's equity every time she refinanced. But hey! She's living in a great house for $99 per month! This is what we call win/win!

It could have worked!

 

[Independent]

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.

jug

Certainly, if I buy auto insurance and have a claim, the insurance company "has to" pay me according to the policy. However, if the insurance company can't pay and declares bankruptcy, I'm out of luck (other than state guarantee funds, which I'm assuming don't apply to big commercial coverages).

AIG Financial would be bankrupt except for the taxpayers. The taxpayers were't legally obligated to pay its debts. There was no "has to" for us before we got involved.

If we decide to step in, we should be able to make the rules. If we decide that Goldman Sachs only gets 50 cents on the dollar, that's the deal. In order to avoid getting caught up in the legal "has to", we may have to let AIG Financial go into bankruptcy court first, then make GS a side offer to buy their position for 50 cents on the dollar. They can turn us down if they'd rather stand in line with the other creditors. If they accept our offer, then we become AIG Financial's creditor.

 

[jug]

If we decide to step in, we should be able to make the rules. If we decide that Goldman Sachs only gets 50 cents on the dollar, that's the deal. In order to avoid getting caught up in the legal "has to", we may have to let AIG Financial go into bankruptcy court first, then make GS a side offer to buy their position for 50 cents on the dollar. They can turn us down if they'd rather stand in line with the other creditors. If they accept our offer, then we become AIG Financial's creditor.

If it were that simple, it would be great. AIG financial was not capitalized enough to pay a fraction of the claims, they rest on the capital of the mother lode.

The toxic assets are the mbs/cds that are being taken in by AIG for the cash layout. In the end, they have value, the underlying real estate. It's not that the government is going to get zero for it's money. This will take years to sort out, we may even come out ahead, but deals are made to pay off the elite, so don't count on it.

This is just another way of buying up the toxic stuff. AIG itself made up of many insurers would literally cripple world commerce if their capital would be compromised in any way. You would not drive a car w/o insurance, neither would a ship depart, nor a plane fly. Finding other coverage would be hard, since there may well be a capacity shortage with other insurers. Would be a real mess.

This was a major screwup by our Congress and our business leaders who cut down the walls between banks, insurers and wall street. An "objective" historian will list this as the major factor among others. Right now you have nothing but professional liar after liar in politics and business doing nothing but placing the blame all over the place in lieu of looking in the mirror.
jug