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,