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.

Paulson/Bernanke: $700 Billion at 'Hold to Maturity' Pricing

Kudos to those who are constructive and balanced, however unpopular that is on the web. Because while some are beating up on Paulson, Bernake and references to “saving” Wall St, we should also talk about the house flippers, the speculators, the low-doc, no-doc, “anyone with a pulse is approved” mortgage brokers and bankers, and the people who let their credit scores get to the sub-prime level – some of these folks have addresses on Main St. USA. Of course the people of CA, FL, AZ, NV (and even OH & MI) are God-fearing, law abiding pedestrians, but many also have a little “greed” in their vocabulary.
Yes, there needs to be a good whoopin' on the housing asset bubble, and certainly the sellers of assets (institutions and home owners) are not getting "bailed out" without bearing a cost. Bernake is trying to thread a needle with his “hold to maturity pricing” statement – provide price support to get markets flowing again, but recognize that it comes with a tax payer cost. I also took it as some signaling that mark to market accounting in defunct markets is potentially problematic (which was tricky for him to state with Chris Cox sitting next to him). The difference between the market in the state when values were rising and today is that in the rising markets, markets are functioning (albeit somewhat irrationally, because the risk was not being priced right.) Now we have irrationality to a point where we are non-functioning.
Greenspan said -- "history has not been kind to protracted periods of low risk premiums." Smart statement – did he never recognize that low interest rates actually contribute to low risk premiums?
Paulson ought to be recognized as the Rudy Giuliani of this crisis.