D-leverage

CDS Recoveries: Down and Out

AIG takes the risk for 2% because the CDS allows them to take the risk with the hope that there is only one cash flow --> that flow being a 2% premium to the seller of protection (AIG). The bank lender may get its 10% on its loan (likely more like 5-6% prior to crisis), but that lender is actually forking over (lending) real dollars to take the credit risk of the borrower. AIG did not have the cash to back up the debt -- and I don't think they even had to post collateral like most counterparties would. AIG probably looked at the CDS as a logical extention of its core insurance business, because that's fundamentally what the CDS is -- insurance.

Moody's, Fitch, S&P, SEC Are All Useless

Were you dialed into this past weekend's meetings from your Wisconsin gardin? Barclay's will pick up a significant number of the LEH employees and pay several billion to do so. Your broad brush slams of the agencies and the SEC are as abusive as naked short selling.