Why AIG Wasn't Allowed to Fail 54 comments
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Justin Fox wonders whether we should have just let AIG fail -- or at least the holdco and the AIGFP subsidiary. They certainly deserved to fail. So why did we bail them out? Because of the systemic fragility of the CDS market, is the answer -- it's basically the same reason why the government stepped in to prevent Bear Stearns from being forced into liquidation. It feared a cascade of counterparty failures which could kill the entire financial system.
Here's the fear: AIG goes bust, and can no longer make good on the promises it made when it said that it would pay out on a CDS contract in the event that a certain credit defaults. Default protection sold by AIG, in other words, becomes worthless. Now let's say you're a CDS desk at, say, JP Morgan. You're buying and selling default protection all the time, and so long as the amount you've bought, on any given credit, is equal to the amount you've sold, you reckon that you have no net exposure.
The minute that AIG fails, everybody else's net position alters substantially, and in a very unpredictable way. The protection that JP Morgan bought from AIG is worthless, while the offsetting protection that JP Morgan sold to some hedge fund remains outstanding. So JP Morgan now has a large position it never wanted.
Now there's a good chance that JP Morgan will have hedged its counterparty risk to AIG -- but that doesn't make the risk go away, it just shunts it elsewhere in the financial system. And the web of connections between the thousands of counterparties in the CDS market is so complex that no one really has a clue who would have ended up holding the multi-billion-dollar bag. All those AIG losses which are currently being borne by the government wouldn't have disappeared if AIG had failed: they would simply have turned up somewhere else in the financial system.
But no one would have had a clue where in the financial system, exactly, those losses would have ultimately come to rest. And given the magnitude of the losses, you can be sure that no one would have wanted to have any kind of dealings with the poor schmucks who ended up on the hook for all those billions of dollars. And since those poor schmucks could be pretty much anybody, no one would do any kind of business with anybody else: you'd get settlement risk run amok. The entire global financial system could grind to a halt overnight, due to the inability of any given institution to persuade any other institution that it was actually solvent.
We don't know for sure that this kind of worst-case scenario would have happened if AIG had been allowed to fail. But we don't know that it wouldn't have happened -- and the US government felt that it simply couldn't take that kind of risk.
What's more, bailing out AIG had the pleasant side-effect of putting the entire global CDS market on a much stronger footing. Remember that CDS, like all derivatives, are a zero-sum game: for every loser, there's an equal and opposite winner. Very few institutions were net sellers of protection; AIG was by far the largest. So what that means is that the rest of the CDS market, ex AIG, is now a net winner to the exact extent that AIG is a loser: a hundred billion dollars or more. Given worries about the fragility of the CDS market and the systemic risks that it posed, bailing out the single largest net seller of protection essentially meant injecting a large amount of government cash into the part of the market that regulators were most worried about. It was quite an elegant solution, in its way: rather than trying to unpick the CDS knot institution by institution, you could just bail them all out at once by backstopping AIG.
Remember that what regulators were most worried about at the time was systemic risk. Whether or not AIG deserved the money was pretty much beside the point: the key thing was that if it didn't get the money, the entire global financial system would be put at risk of collapse. In which light, the cost of the AIG bailout looks positively modest, compared to its benefit.
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This article has 54 comments:
Maybe taxpayers are better off being out of the bailout funds if it stems systemic chaos. Maybe not. But you have to acknowledge who funded the bailout of i-banks and hedge funds before you can even have an honest discussion.
The same arguments apply to Lehman, but the CDS portfolios were unwound with an insignificant $5 billion loss. Also lots of collateral backed up all these contracts that could take the hit. In the end I think the regulators will step in and say the only valid CDS contracts are those where the buyer holds the bonds. All the others are like commodities futures and other than providing liquidity have no economic value, in other words a casino bet.
What happened when Lehman failed was probably a smaller version of what would have happened if AIG failed. But, then, I'm not sure it would have actually looked much worse than what we saw last fall.
The Fed (and every other central bank in the world) can step in anywhere it wants in this process and either make a bank whole enough to continue functioning or simply take over the necessary public-service type functions. In theory, the Fed could even get into consumer loans, if it deemed that necessary. There is no necessity to have names like Citi, Goldman Sachs, JPMorgan, etc. As long as money flows between buyers and sellers, lenders and borrowers, the identity of the intermediaries is unimportant.
Thus, every single enterprise involved in the CDS market could theoretically go belly up this afternoon, and there's no real reason the financial world could not continue to function. There'd be lots of temporary dislocations, but as long as the actual money keeps flowing through the system, the identity of the winners and losers should not matter. At least on a macro level.
At a really basic gut level, I feel that I should not be funding ANY losses in the CDS market. AIG sold contracts it couldn't back up? These have been sold down the road to some "innocent" investor? Tough. We don't make good to the victims of fraud. We have social safety nets so people don't end up on the streets starving, but we don't give back the money lost in the fraud beyond what assets are left. (See entries under "Madoff".)
I disagree with you on this one, Felix. The AIG bailouts have been nothing less than a giant ripoff of us, the taxpayers.
I'm sure there are lot's of buyers so we can grow really fast and pay ourselves lots of money in the process (especially those bonuses!). Then when we started defaulting on our contracts good ole Uncle Sam will step in. No Problemo! Just rinse, repeat, and laugh all the way to the bank.
The CDS business should be shut down or at the very least heavily regulated. Now let's here from all the morons who think otherwise......but full disclosure only please, lol.
Is AIG out of this business now? I would think so, but not sure. Since the government owns AIG they certainly should be out of the CDS business? But, why does AIG still need help?
If they can do that then why has it not been done?
The financial system would have figured it out. Some companies would have gone out of business. Some people would have gotten assets for cheap. Meaning the market reallocated the poorly used resources for a better outcome. Instead, we get a pendulum swing in disgust: Now we are being sold Keynes models, Socialized Medicine (what did that have to do with this?), higher taxes on value creation. Exactly the same reaction -- instantiated differently -- that we got in the 30's overreaction to the stock market crash. Which means we are likely prolonging the recovery period as we did then, as Japan did in the 90's. Furthermore, we are burdening future generations not only with this debt, but with radical overreactions that cannot be easily unwound.
----------------------...
A situation that could easily be fixed:
Require institutions with CDS exposure to provide up-to-the-second updates online, viewable by all. Counterparty risk could then be exactly calculated by customers, creditors, and investors. Radical transparency would solve this, but probably reduce the CDS market.
Thanks to the hard work of "patriots" like Rep. Thomas W. Ewing (R-IL), Rep. Thomas J. Bliley, Jr. (R-VA), Rep. Larry Combest (R-TX), Rep. John J. LaFalce (D-NY, and Rep. Jim Leach (R-IA) regulating CDS's were never discussed on the House floor.
And thanks to the hard work of Sen. Richard Lugar (R-IN), Sen. Peter Fitzgerald (R-IL), Sen. Phil Gramm (R-TX), Sen. Chuck Hagel (R-NE), Sen. Thomas Harkin (D-IA), Sen. Tim Johnson (D-SD) it was never debated in the Senate.
Well, to make a long story short, these "geniuses" saw no need for "red tape" of Big Dadburn Gum'mint getting in the way of "small bid'nesses" to buy and sell CDSs with absolutely no regulation whatsoever!
It was a done deal! They slipped it into the omnibus spending bill:
en.wikipedia.org/wiki/...
...and the rest is, as they say "history".
Can't do that. It would be an ex post facto law. Los Supremos would swat it down in a (dare I say it....) New York minute.
On Mar 17 05:01 PM Mike Hydes wrote:
> What would happen if Congress just invalidated these credit default
> swaps?
>
> If they can do that then why has it not been done?
On Mar 17 02:40 PM Thadeus Thornton III wrote:
> So how do I get to pass my default on my home and car loans off on
> someone else? I mean I can get PMI for my home, but that doesn't
> allow me to be reckless and stupid. Does anyone know of an insurer
> (besides AIG) who will give me a policy soon so that I can default
> and have my stuff for free. . . Oh, and maybe with a cash "bonus"
> too for being crafty enough to think of this?
But as an attorney, this is what jumps out at me: "no one really has a clue who would have ended up holding the multi-billion-dollar bag"
That's the kind of thing people say when they don't want you to know where the bodies are buried. Regardless, it is a very poor reason for spending hundreds of billions of dollars. Given these sums, it's worth the effort to figure out. And it's a perfectly doable task, if qualified people put in some time. Thus, either our government is throwing around billions without knowing the facts, or else they do know but prefer not to say where the bodies are buried. I just can't believe that the contracts are too complicated to figure out, and that lame excuse is viewed an acceptable justification.
Note to ANANDAKOS, vis-a-vis MIKE HYDES' comment: no, the "ex post facto" law only applies to criminal penalties. Congress probably could invalidate the contracts, although (1) whether it would be useful, after being tied up in court for years, is another question; and (2) if Congress had the political will to really attack this problem, they would be doing it, instead of this elaborate Kabuki theater about the bonuses.
If AIG is *that* exposed, then really, who's going to pay for it all? That's right, you and me. I think the company should be treated as a bankrupt entity and its division sold at market value - this will certainly take care of the executive bonus problems.
All parties on the other end of the CDS paper have had 6 months to prepare in whatever way for an outcome. We should not give anymore money to AIG and let the chips fall where they may. As Larrysyr said, we really only need a basic check clearing function from these big banks. Smaller banks will then step up, and you can bet that they won't be so stupid to bet their own money on fraudulent insurance contracts backed by AAA ratings from some paid-off whores.
Football and politics seem to have a lot in common; thugs using force and illusion to reach their ends. The administration has known for some time that contracts with AIG employees would need to be consummated. This employee compensation was not a surprise when the latest $30 billion in bailout money was given to AIG last week. The $160 million dollars paid to employees as part of their compensation is not the issue. The issue is the headfake the Obama administration is giving the American people. He has spent nearly $800 billion on the first so called stimulus package, another 410 billion on the omnibus appropriation, more than a trillion dollars through the Feds office, and Nancy Polocy is already arguing for another stimulus package. Now, while he looks to chastise AIG for fulfilling their agreements with employees and other associates, Obama is working feverishly to pass his $3.6 trillion budget. While spending our children’s future, Obama portrays himself as the protector of the people and master of financial responsibility, by focusing our attention on AIG’s mistakes. What a headfake.
It not just that he’s spending money during a time when everyone knows it’s time to save money. It not even that he spending money we do not have, nor is the problem that the money he is spending is unlikely going to do much for the economy. The problem is not even that he is disrupting the capitalistic process and falsely elevating failed companies. The problem is that he is spending the money to nationalize many sectors of the financial system. About 80% of AIG is owned by the federal government. The government owns a portion of many banks, which are the central nervous system of capitalism. He plans to nationalize health care and student loan programs. If you wonder what investors think about that, look at the common stock value of Humana, United Health Care, Coventry Health Care, Fannie Mae, Freddie Mac, and even Sallie Mae.
There are two main issues that are clearly demonstrated by the AIG headfake. First, not only are governments above the law, they think they are the law. Even if binding contracts exists and they knew about them, they demonize those whom they do not feel are justified to receive compensation, in-spite of the law. Worse yet, the administration and accomplishes in congress use their law making abilities to tax those they do not believe deserve legally derived compensation. Do you wonder why China is worried about buying US treasuries? After all, they can’t be entitled to all that money while their goods are faulty and their human rights record is so poor.
But here’s the nugget. In trying to create a headfake and illusion that the administration is the master of financial responsibility, they undermine AIG’s ability to survive. After investing $160 billion in AIG, it is irresponsible, careless, and dangerous to continue to demonize them. Working closely and somewhat covertly with AIG to find a solution is reasonable, but to create and perpetuate the notion that AIG is an evil company to headfake America is despicable. So, AIG is a fragile and distressed company whose success is essential to the world’s financial recovery (our why did we give them so much money) and now society owns 80% of them. Obama and company are demonizing their own company which in turn creates animosity that makes AIG’s success even more unlikely. This is exactly why nationalizing companies does not work. Even the most incompetent capitalist wouldn’t destroy his companies own name. Headfakes can have very serious unintended consequences and this administration must be getting dizzy.
I reference the Spitzer article that appeared today:
www.slate.com/id/2213942/
We the people now own 80% of AIG. I'm not sure that is ever going to be worth much. If we had not stepped in, we are told that the entire system would have come crashing down.
Wouldn't it have been a better deal to let AIG fail and then back up the counter party losses, if requested, with equity infusions? Instead of owning 80% of crap, we would have positions in all of the major financial institutions in the world. Or they could have turned down the infusions and taken their losses.
As Spitzer notes in his article, when Hank Paulson comes to the rescue of AIG, he knows that he is really funding his old pals at Goldman to the tune of $12 billion.
It was interesting how all this was handled. Very secret. Can't disclose counter parties. Well now we know why.
I was in favor of rescuing AIG at the time because, as Felix points out, we saved the system (so far). But this is really to smell so bad now.
I know that there are a few positions open at the Treasury department. Given the smell of TARP and the AIG bailout, maybe we should consider Bernie Madoff for the open position. He may have the most relevant experience in terms of how to handle these multi billion dollar ripoffs.
Moreover, if the global financial structure is that brittle and fragile, it deserves to fail.
Then we can build one that is robust and responsive from the survivors.
I'm tired of this argument, much as I appreciate Felix explaining it again to us in language non-financiers can understand.
On Mar 17 07:59 PM mr freddo wrote:
>
> I know that there are a few positions open at the Treasury department.
> Given the smell of TARP and the AIG bailout, maybe we should consider
> Bernie Madoff for the open position. He may have the most relevant
> experience in terms of how to handle these multi billion dollar ripoffs.
Perhaps it has something to do with the enormous exposure that Goldman Sachs had to AIG. Lloyd Blankfein, the chairman of Goldman Sachs, was the only non-government or Fed official who was at the meeting at which this bailout was decided.
So to me GS=Treasury
Any questions?
The moment AIG start showing financial problem last year, its pretty much clear that the government has to step and rescue this institution from collapsing, because AIG insured too many CDS.
Letting AIG collapse will mean not only insured US client will not get their money, but international client as well, not a good time to default anyone when US treasury need foreign fund to continue buying treasuries, not related, but sad to say uncle Sam was the guarantor.
> I disagree with you on this one, Felix. The AIG bailouts have been
> nothing less than a giant ripoff of us, the taxpayers.
> AIG and the big banks have gamed the system. They have become successful
> at widespread extortion of the taxpayer and the government is caught
> in the web. And this is all legal, apparently. There are no prosecutions
> of any significance going on here. No laws have changed so guess
> what? Let's get into the CDS business!
> I'm sure there are lot's of buyers so we can grow really fast and
> pay ourselves lots of money in the process (especially those bonuses!).
> Then when we started defaulting on our contracts good ole Uncle Sam
> will step in. No Problemo! Just rinse, repeat, and laugh all the
> way to the bank.
>
> The CDS business should be shut down or at the very least heavily
> regulated. Now let's here from all the morons who think otherwise......but
> full disclosure only please, lol.
> The fairest thing for everybody would have been to let AIG go under
> and let the system begin to sort out all these derivative products.
>
>
> If AIG is *that* exposed, then really, who's going to pay for it
> all? That's right, you and me. I think the company should be treated
> as a bankrupt entity and its division sold at market value - this
> will certainly take care of the executive bonus problems.
Really? Elegant? And how exactly do you come to the conclusion that bailing out AIG was going to be a one-stop shopping, take care of the whole multi-trillion dollar global CDS contract network? Socializing losses was the EASY way out, pure and simple, while keeping the well connected and priveleged whole.
Maybe unwinding the CDS knot institution by institution is exactly the medicine that the global financial system needs, no matter how painful. Although, it's a lot easier to dump the losses on 'schmuck' retail investors and citizens, isn't Howard?
Regarding AIG CDS deals, you would think at least they would be honest or competent enough to negotiate down their liability rather than act like everything is business as usual. Who are these corn dogs? We know the executives. What complete imbeciles?
Knowing them, they'll keep rolling the CDS contracts to keep from reporting even more losses now at the cost of greater losses in the future. That's how the great banking shell game works.
Banks are all happy Fasb is letting them back away from mark to market a little this week. Backing away a little is like letting a little leak in a fish tank go. Pretty soon the whole financial system soaked in a new batch of diverted and hidden losses.
Will they ever learn?
who invented hedge funds and why? investing for tax dodgers?
the italian head of govt. said hedge funds should be illegal.
if investing is risk taking, then why make phony insurance on investments legal? an investor who wants it both ways is buying snake oil, and should not delude himself that he has an appetite for risk. that thinking made madoff and others very wealthy.
clinton had a dream: a home for every american to own. if the financial institutions had not bought into phony insurance on garbage loans, the govt. would have had to fund the mortgages with taxpayer money, not private capital. ooops, they thought they did, except when freddie and fannie failed, they found out they didn't.
On Mar 17 03:10 PM Mbuna wrote:
> AIG and the big banks have gamed the system. They have become successful
> at widespread extortion of the taxpayer and the government is caught
> in the web. And this is all legal, apparently. There are no prosecutions
> of any significance going on here. No laws have changed so guess
> what? Let's get into the CDS business!
> I'm sure there are lot's of buyers so we can grow really fast and
> pay ourselves lots of money in the process (especially those bonuses!).
> Then when we started defaulting on our contracts good ole Uncle Sam
> will step in. No Problemo! Just rinse, repeat, and laugh all the
> way to the bank.
>
> The CDS business should be shut down or at the very least heavily
> regulated. Now let's here from all the morons who think otherwise......but
> full disclosure only please, lol.
Our gov't has screwed us of a new Wall Street. We have interfered with Darwinism.
The contracts weren't 'too hard' to figure out. Simply put, the Govt. found the largest issuer of CDS certificates and propped them up. Think of it as simply 1 line item in a 800 page bill rather than 800 billion dollars. It was expedited as a single line with less political backlash.
The Govt. should have been monitoring these CDS's along the way. I hear the market is somewhere in the 55 trillion range.
Either way, the argument is that AIG had dealings that reached all sectors of all corners of the WORLD. Thereby labeling it as 'too big to fail'. My question is, "why did the US taxpayer have to bail out the world?"
Each and every country would have had to take necessary measures to ensure the viability of its own financial institutions. That would have been an approach I would been in favor of rather than the US taxpayer being the knight in shining armor. Furthermore, we will be left with the hyperinflation that is right around the corner.
Felix: well put, again.
Last year AIG and its subsidiaries spent about $9.7 million on federal lobbying, or about $53,000 for every day Congress was in session in 2008, it was down from the 2007 level of $11.4 million.
From 1998-2008 Campaign Contributions from Bear Stearns was $6,355,737 and Lobbying Expenditures were $9,550,000, once again when I PURCHASE something I expect something in return.
And then there is the small problem of stock ownership - I am sure that all the poor, hardworking Senators and members of the House of Non-Representatives don't own stock in the companies they are giving our hard earned tax dollars (It is not govt. money). Wait - this just in - It is reported that Twenty-eight current members of Congress owning stock in AIG last year, at the time worth between $2.5 million and $3.3 million. Sen. John Kerry (D-Mass.), one of the richest members of Congress, was by far the biggest investor in AIG, with stock valued around $2 million. Two senators who chair committees charged with overseeing AIG and the insurance industry, Sen. Chris Dodd (D-Conn.) and Sen. Max Baucus (D-Mont.), are among the top recipients of AIG contributions. Baucus chairs the Senate Finance Committee and has collected more money from AIG in his congressional career than from any other company. I am sure that this is all just a happy coincidence and all the campaign money and stock ownership has nothing to do with our duly elected non-Representatives giving our hard earned money to these companies.
If you don't believe there is a connection - I have a bridge in NYC you might be interested in purchasing. P. T. Barnum was right and we are a country full of them.
On Mar 17 05:01 PM Mike Hydes wrote:
> What would happen if Congress just invalidated these credit default
> swaps?
>
> If they can do that then why has it not been done?
On Mar 17 07:50 PM User 378199 wrote:
> AIG: Obama’s Headfake Shows America Cannot Allow Nationalization
>
>
> Football and politics seem to have a lot in common; thugs using force
> and illusion to reach their ends. The administration has known for
> some time that contracts with AIG employees would need to be consummated.
> This employee compensation was not a surprise when the latest $30
> billion in bailout money was given to AIG last week. The $160 million
> dollars paid to employees as part of their compensation is not the
> issue. The issue is the headfake the Obama administration is giving
> the American people. He has spent nearly $800 billion on the first
> so called stimulus package, another 410 billion on the omnibus appropriation,
> more than a trillion dollars through the Feds office, and Nancy Polocy
> is already arguing for another stimulus package. Now, while he looks
> to chastise AIG for fulfilling their agreements with employees and
> other associates, Obama is working feverishly to pass his $3.6 trillion
> budget. While spending our children’s future, Obama portrays himself
> as the protector of the people and master of financial responsibility,
> by focusing our attention on AIG’s mistakes. What a headfake.
>
> It not just that he’s spending money during a time when everyone
> knows it’s time to save money. It not even that he spending money
> we do not have, nor is the problem that the money he is spending
> is unlikely going to do much for the economy. The problem is not
> even that he is disrupting the capitalistic process and falsely elevating
> failed companies. The problem is that he is spending the money to
> nationalize many sectors of the financial system. About 80% of AIG
> is owned by the federal government. The government owns a portion
> of many banks, which are the central nervous system of capitalism.
> He plans to nationalize health care and student loan programs. If
> you wonder what investors think about that, look at the common stock
> value of Humana, United Health Care, Coventry Health Care, Fannie
> Mae, Freddie Mac, and even Sallie Mae.
>
> There are two main issues that are clearly demonstrated by the AIG
> headfake. First, not only are governments above the law, they think
> they are the law. Even if binding contracts exists and they knew
> about them, they demonize those whom they do not feel are justified
> to receive compensation, in-spite of the law. Worse yet, the administration
> and accomplishes in congress use their law making abilities to tax
> those they do not believe deserve legally derived compensation. Do
> you wonder why China is worried about buying US treasuries? After
> all, they can’t be entitled to all that money while their goods are
> faulty and their human rights record is so poor.
>
> But here’s the nugget. In trying to create a headfake and illusion
> that the administration is the master of financial responsibility,
> they undermine AIG’s ability to survive. After investing $160 billion
> in AIG, it is irresponsible, careless, and dangerous to continue
> to demonize them. Working closely and somewhat covertly with AIG
> to find a solution is reasonable, but to create and perpetuate the
> notion that AIG is an evil company to headfake America is despicable.
> So, AIG is a fragile and distressed company whose success is essential
> to the world’s financial recovery (our why did we give them so much
> money) and now society owns 80% of them. Obama and company are demonizing
> their own company which in turn creates animosity that makes AIG’s
> success even more unlikely. This is exactly why nationalizing companies
> does not work. Even the most incompetent capitalist wouldn’t destroy
> his companies own name. Headfakes can have very serious unintended
> consequences and this administration must be getting dizzy.
> ERGO:
> The contracts weren't 'too hard' to figure out. Simply put, the
> Govt. found the largest issuer of CDS certificates and propped them
> up. Think of it as simply 1 line item in a 800 page bill rather
> than 800 billion dollars. It was expedited as a single line with
> less political backlash.
>
> The Govt. should have been monitoring these CDS's along the way.
> I hear the market is somewhere in the 55 trillion range.
>
> Either way, the argument is that AIG had dealings that reached all
> sectors of all corners of the WORLD. Thereby labeling it as 'too
> big to fail'. My question is, "why did the US taxpayer have to bail
> out the world?"
>
> Each and every country would have had to take necessary measures
> to ensure the viability of its own financial institutions. That
> would have been an approach I would been in favor of rather than
> the US taxpayer being the knight in shining armor. Furthermore,
> we will be left with the hyperinflation that is right around the
> corner.
>
> Felix: well put, again.
There's nothing wrong with CDSes, and there's nothing wrong with hand grenades - provided the people using them know what they're doing, exercise proper care, and don't do it on airplanes.
Problem is, it's hard to tell who knows what they're doing when everyone's a salesman. Traders know who lobbed the most grenades, but nobody knows who did it properly (they just know they haven't gotten blown up yet). The incentives are utterly out of whack - nobody was judged by proper handling of dangerous items, but only by volume handled.
Hence the outrage at the bonuses (rewards for a screwy incentive scheme) - as opposed to the billions of the bailout. Sometimes, the common sense (and sense of outrage) of the American people is more rational than we give ourselves credit for.
On Mar 17 07:08 PM Aalan wrote:
>
> Note to ANANDAKOS, vis-a-vis MIKE HYDES' comment: no, the "ex post
> facto" law only applies to criminal penalties. Congress probably
> could invalidate the contracts, although (1) whether it would be
> useful, after being tied up in court for years, is another question;
> and (2) if Congress had the political will to really attack this
> problem, they would be doing it, instead of this elaborate Kabuki
> theater about the bonuses.
"Senator Barack Obama received a $101,332 bonus from American International Group in the form of political contributions according to Opensecrets.org. The two biggest Congressional recipients of bonuses from the A.I.G. are - Senators Chris Dodd and Senator Barack Obama. "
www.examiner.com/x-268...~y2009m3d17-Obama-Rece...
On Mar 18 12:58 AM TJefferson wrote:
> And then there is the small problem of stock ownership - I am sure
> that all the poor, hardworking Senators and members of the House
> of Non-Representatives don't own stock in the companies they are
> giving our hard earned tax dollars (It is not govt. money). Wait
> - this just in - It is reported that Twenty-eight current members
> of Congress owning stock in AIG last year, at the time worth between
> $2.5 million and $3.3 million. Sen. John Kerry (D-Mass.), one of
> the richest members of Congress, was by far the biggest investor
> in AIG, with stock valued around $2 million. Two senators who chair
> committees charged with overseeing AIG and the insurance industry,
> Sen. Chris Dodd (D-Conn.) and Sen. Max Baucus (D-Mont.), are among
> the top recipients of AIG contributions. Baucus chairs the Senate
> Finance Committee and has collected more money from AIG in his congressional
> career than from any other company. I am sure that this is all just
> a happy coincidence and all the campaign money and stock ownership
> has nothing to do with our duly elected non-Representatives giving
> our hard earned money to these companies.
>
> If you don't believe there is a connection - I have a bridge in NYC
> you might be interested in purchasing. P. T. Barnum was right and
> we are a country full of them.
On Mar 17 04:23 PM Websage wrote:
> Thanks for explaining this in a clear and concise way Felix. So,
> are CDSs no longer a systemic risk, thanks to US tax payers? Did
> we save the world?
>
> Is AIG out of this business now? I would think so, but not sure.
> Since the government owns AIG they certainly should be out of the
> CDS business? But, why does AIG still need help?
CDS are private contracts. Congress cannot act on its whims and fancies abrogating private contracts.
On Mar 17 05:01 PM Mike Hydes wrote:
> What would happen if Congress just invalidated these credit default
> swaps?
>
> If they can do that then why has it not been done?
This is major corruption. AIG and Lehman should have both failed. Most insurance policy holders would be covered by state insurance funds. CDS contracts would be settled with like other creditors in bankruptcy. The Financial Products division would have been gone by now, all of the folks responsible gone, and a restructuring would have been underway for the rest of the company.
Man, how it hurts some days to live in a corrupt country. This is not what our founding fathers would have wanted to see.