objective

The AIG Life Insurance Numbers

a NYT article with analysis of AIGs CDS exposure.

www.nytimes.com/2009/0...
It states:
“…A.I.G.’s insurance commitment stood at “only” $302 billion in part because the government has already voided $62 billion of the protection A.I.G. had written on pools of especially toxic securities. The underlying collateral on those contracts, valued at about $32 billion or so, now sits in a facility that the Federal Reserve Bank of New York oversees and which we, the taxpayers, own.

In order to rip up those contracts, the taxpayers had to make A.I.G.’s counterparties whole by buying the debt that A.I.G. had insured and paying out — in cash — the remaining amount owed to the counterparties.

Of the $302 billion in insurance outstanding at A.I.G., about $235 billion was sold to foreign banks and covers prime home mortgages and corporate loans. The banks that bought this insurance did so to reduce the money they must set aside for regulatory capital requirements.

A.I.G. also wrote $50 billion of insurance on pools of corporate loans. These contracts are performing O.K. for now, the company has said. ”

Now in ‘09 the Fed (via NY Open Market Operations) is buying $500B of MBS (already at $200B+ as of last week). Perhaps AIGs counter parties are (or could be, or were "encouraged" to) selling the "prime home mortgages" to the Fed in order to tear up the CDS contracts with AIG in a similar way to that described above, voiding a big AIG liability without causing a large drop in the value of the MBS while liquidating as the Fed is a ready buyer.

So if the NYT article is accurate, when it claims: "According to its most recent financial statements, A.I.G. had $302 billion in credit insurance commitments at the end of 2008.", and if, as the article states, most of it is on prime mortgages held by Euro banks that can now safely be sold to the Fed (probably at a profit!); doesn't this look like it can/will be over soon? with the Fed holding the mortgages until they run off in a few years.

Resp,

Caterpillar's Troubling Bond Issue

I agree CAT is a "bank".
But a "bank" without access to deposits for capital and the Fed discount rate for reserves...
CAT has to borrow the money they lend.
I Suggest this model may be broken. That is basically what BearStearns/Lehman/AIG... etc. did...
The supposed "smartest" people at GS and Morgan Stanley have given up and converted to the commercial bank model, so can CAT keep it going if the I-banks can't?... I think you have to take this into consideration when looking at a CAT/GE/GM etc...who depend on borrowing $ to lend to others....
If they get out or are forced out of finance, can they line up banks willing to lend to their equipment customers with underwriting standards that will still result in previous sales volumes?

Headwinds Index: How Long Can Financials Outperform Energy?

Could the regulators be saying, in effect:
"The hedge funds have to short something, lets give them something to short, lets make it impossible to short financials thru a rules change, and give them no other choice."
Hint: Take a look at the 1 year charts of commodities vs. financials and see which one looks like its time to sell.....we're only 2 weeks into it....

We're Nearing Crunch Time for Oil

Some observations:
On 5/2 Nymex Volume on the June 08 Crude oil Contract was
277,973 ( I assume that is contracts). At 1,000 bbls per contract
that is 277.97 Million bbls. that day, other days in the last weeks have had similar volumes.
Global oil consumption is 85 Million bbls. per day.
US consumption is 20 million bbls per day.
Why would the US futures mkt. have to trade over 3 times the actual consumption of the underlying for the globe, and over 13 times the US consumption on a given day?
I'm not even considering add'l volume on foreign exchanges and OTC trade in oil.
US airlines (big users) ex-Southwest dont even hedge, btw who does hedge? FEDEX? UPS? JB Hunt? YRC? CSX? Doesnt seem like they do come earnings time.
If my above assumptions are correct. I have to also assume the big volume is from speculation.
$8700 to go long 1,000 bbls. (~$115,000 value) for NYMEX.

I am a non-professional trying to improve my understanding of this oil issue. If any of my assumptions are incorrect I would appreciate feedback.
Thx