wakeup call

AIG Bailout: A Goldman Rescue in Drag?

To add credence to Pirrong"s position someone should take a look at the actual claims under AIG's CDSs. Virtually zero claims. If one looks at the actual default rate on the CDO obligations versus the market valuation my kids could have found a better fix for AIG's crisis and yet GS was asked to help and their answer was sorry we can't. Possibly too busy protecting their own hide? Fed guarantees would have protected AIG's counterparties with virtually no additional support from the taxpayers and the hit taken by AIG's institutional shareholders would have been much less that disaster that actually occurred. I still maintain that during the first two weeks of the AIG bailout GS was scrambling to protect itself while its government "friend" kept AIG on life support to avoid its filing Chapt 11. Once GS was protected no one cared about AIG.

The Microwave Society's Answer to the Economy Is Half Baked

The problem with CDOs is not the underlying paper. The problem with CDOs is that the discount reflected a potential perception of possible market problems. If you look at the CDO valuations in relation to the actual portfolio performance you will see discounts that are no relection of actual performance. To remove this anomaly from the analysis take away mark to market accounting then deal with actual loans that do go bad. A bad loan is fixable since there is something tangible behind it. A CDO is a synthetic and difficult or impossible o fix.