peter6

Subprime Writedowns and Losses for Major Financials

For what it is worth, you omit Goldman Sachs and AIG.

Crunching Numbers: Why I'd Buy AIG

The news that AIG went to Fed for help is very very bad indeed. It is kind of last resort. Historically it is a very bad news - such as LTCM, Bear Stearns, Lehman, Fannie and Freddie, etc. The Fed might save the company, but there is usually little left for shareholders.

Crunching Numbers: Why I'd Buy AIG

Sorry Tom, I misunderstood you. You were talking about liabilities, but you talked as if you were talking about assets. You talked as if the worst that could happen is 100% loss of the collateral. In reality, 200% loss or even more is possible, regardless of the probability. Market is concerned that a downgrade (a real possibility) will force the company to increase the collateral (that is why 100% can be exceeded). In fact, market has already treated the company as 10 levels below the official rating, so an official downgrade is not unlikely. At this stage, any opinion (buy or sell) is a gamble as everything depends on how the future unfolds. As Greenspan says on Sunday, "it depends on how it is handled".

Crunching Numbers: Why I'd Buy AIG

According to Bloomberg, even before Friday AIG's CDS liabilities were traded as if they were rated B1, four levels below investment grade and 10 levels under their actual rating. AIG was concerned about further downgrade according to IHT. So the jittery is about their CDS liabilities increasing, not assets diminishing as calculated by Tom. Unless I miss something here.

Crunching Numbers: Why I'd Buy AIG

You have done some calculations about the value of their assets. But have you done any calculations about their CDS liabilities? Would somebody care to comment?