D-leverage

AIG: Before Credit Default Swaps, There Was Reinsurance

I have a similar reaction as FID on the letter and on several other points.

That said, well done article, one that deserves some attention.

Points to tighten up for this financially knowledgeable outsider…
- Getting into the CDS market was probably actually a very logical extension of insurance business (not so "mysterious"). Collecting premiums with little risk of payout and (no better yet, with no collateral posting) is what the big guys get to do.
- Finite insurance in and of itself is not a "scam", but perhaps the term has become synonymous with problems (same said for side letters, which the article explicitly, and unfairly describes as "criminal acts")
- "Give me $6 million today, and I will give you a promise that we both know I will never honor" sound NOTHING like the CDS market. (that is an outrageous inference)
- “ "No claim will be made before the commutation date", which may be interpreted as being a warranty by the insured that no claims shall be made under the policy [ever].” Couldn't the “commutation date” reference a metaphor using CDS language that indicated the beginning of the contract -- who knows -- but whatever the case, the inference of NEVER paying out (as FID above indicates) is not as clear as the author seems to indicate.

I don't want to defend AIG, or the dogs in FP, because I do beleive that there was very bad stuff going on, but with a bit more tightening, the credibility of article could be improved.