dcb

Live Perspectives on Berkshire Day (From Twitter)

www.bloomberg.com/apps...

www.bloomberg.com/apps...

Unwinding AIG’s Derivatives Exposure: Loomis and Buffett

To exit the contracts, AIG used Federal Reserve and Treasury Dept. cash to pay the counterparties 43% on the dollar for the securities (which now reside on the Fed balance sheet as Maiden Lane III). Then the company paid off $26 billion in insurance on the same CDOs to Goldman Sachs ($5.6 billion) and Societe Generale ($6.9 billion), among others. This cost taxpayers $46 billion.

I didn't know where to post this, but can someone translate for me. if you pay to exit the contracts, why do you pay the insurance? This looks to me like paying twice? why no haircut?
I don't understand it, but for some reason it smells bad to me, so I'd like to learn.
Thanks,
and I add this from Bloomberg.
April 7 (Bloomberg) -- American International Group Inc.’s payments to banks including Goldman Sachs Group Inc. after the insurer’s bailout are being probed by the chief watchdog of the U.S. financial rescue program.

Neil Barofsky, special inspector general for the Troubled Asset Relief Program, has opened an audit into whether there were attempts made by New York-based AIG or the government to reduce the payments, according to an April 3 letter he wrote to Representative Elijah Cummings. The Maryland Democrat had requested the probe last month along with 26 other lawmakers.

Lawmakers, frustrated with the cost of an AIG bailout that expanded three times, have asked why about $50 billion was paid after the rescue to banks that bought credit-default swaps from the firm. Legislators want to know if AIG offered less to retire the contracts and whether there was any review about banks’ ability to sustain losses on the derivatives.

“To what extent did AIG pay counterparty claims at 100 percent of face value and was any attempt made to renegotiate and close out these claims with ‘haircuts?’” Barofsky wrote. “Questions concerning whether AIG paid more than necessary to counterparties and whether Treasury adequately monitored such payments are clearly relevant.”

To contact the reporter on this story: Hugh Son in New York at [e-mail]

IF SOMEONE COULDEXPLAIN WHY aig IS PAYING ON BOTH OR WHAT IS GOING ON I WOULD APPRECIATE.