Gerry Sullivan

Why Congress Is Asking Bernanke Bogus Questions

Bernanke repeatedly states that BAC would not have
been successful invoking the "material adverse change" (MAC) clause. That opinion is a convenient explanation for why the Fed jawboned BAC to keep the deal together.

In my opinion it seems that BAC might well have prevailed in court if they used MAC.

Several times the Fed Chairman stated that he is not an attorney, but in the case of BAC invoking MAC he gives a legal opinion anyway.

AIG: The CDS Market Bailout

AIG has about $500 billion in notional value of Credit Default Swaps. I have read that the total notional value of Credit Default Swaps is over $60 trillion.
Where is the other 99.2%?
Now that is something to worry about.

A Possible 10 to 1 Bet on AIG

I bought this AIGprA on Wednesday and sold it today. I currently have no position in AIG.

I am looking at the AIG listed notes, the American General Finance notes and International Lease Finance notes. The latter 2 are AIG subsidiaries.

A Possible 10 to 1 Bet on AIG

The AIGprA is different from the Fannie and Freddie preferreds. The AIG is a debenture, a debt instrument. Fannie and Freddie issued true preferreds. The Fannie and Freddie preferreds dividends are not cumumlative if not paid. The cash payments on the AIGprA accumulate if deferred.
The annual cash distribution on the AIGprA is $6.375. If not paid, it is cumulative. Part of it will become additional shares and part of it will become additional debentures.
The conversion rate for each AIGprA is approximately 1.97 shares. If the cash distributions are deferred, they compound at about 5.67%/yr.
Check the prospectus. Lots of moving parts, but a very interesting opportunity.
www.sec.gov/Archives/e...

The Financial Storm of the Century

Corzine is correct about the US consumer in general and credit cards specifically. We have only seen the tip of the iceburg.
AIG is "technically solvent" but their credit protection costs 12%/year.
In the World Series of Poker, AIG would be referred to as the "short stack" and this is the "degree moment."
AIG, like Lehman, has huge corporate hubris. Where on Earth will AIG come up with $100 billion?
The Fed was right to let Lehman go and should do the same with AIG.
Then, work on saving the banks, which will be the financial survivors, and the financial powers of the future.

And Then There Were Two: Securities Firms Come Crashing Down

Bank of America + Merrill Lynch, it looks more and more like Citigroup.
Why did BAC pay so much? They could have had Merrill for $10/share later this week.

Crunching Numbers: Why I'd Buy AIG

AIG is a house of cards. We now will see Lehman liquidated and then we will be able to accurately mark to market the AIG assets, and better estimate the AIG liability for Credit Default Swaps.
The result will probably be zero or negative.

Market Losing Patience with AIG

"Triple pillar of the world transformed into a strumpet's fool." The quote from Shakespeare is a perfect summation of the situation at Lehman, AIG and Merrill Lynch.

The "strumpet" was the allure of huge, easy profits from various fixed income "new paradigms."
Sub prime and Alt-A mortgages. Collateralized Debt Obligations. Credit default swaps.

The fool?

AIG: The Mark-to-Lehman Market

The real problem with AIG is the Credit Default Swaps. How much do they have outstanding on Lehman? Wamu? Merrill Lynch?
General Motors, Ford, etc?
Is AIG meeting the required marks to market?
Can AIG survive a rating cut?
Why does it cost 1200 basis points to insure AIG debt?