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Thumbs down The only thing to do is pay off the swaps
Old 03-19-2009, 05:04 AM   #41
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Thumbs down The only thing to do is pay off the swaps

Quote:
Originally Posted by jug View Post
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?



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Old 03-19-2009, 05:19 AM   #42
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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 ......
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In a way, they are victims as much as everyone else.
Old 03-19-2009, 05:26 AM   #43
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In a way, they are victims as much as everyone else.

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Originally Posted by Hal3 View Post
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.


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And let's not forget poor Maria!
Old 03-19-2009, 06:08 AM   #44
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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!
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Old 03-19-2009, 09:06 AM   #45
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Quote:
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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.
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Old 03-19-2009, 10:15 AM   #46
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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.
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