Augustus

More AIG Controversy: Maiden Lane III

It is pretty much impossible to determine if a particular CDS was really "naked" as you allude to. Suppose I've got insurance on IBM debt. Wouldn't that also theoretically protect me in event of default by the US Govt?

AIG's Cassano: The Man Who Crashed the World?

Good write up. generally Lewis does a good job. In this case he makes some reaches that don't pan out in the final analysis. When Lehman, Merrill, and Bear decided that there were excess profits to be made in eating their own cooking it was their decision and misunderstanding of the risks that took them down. Every time I read that they were crooks I know that the author simply does not understand. If they knew it was bad, they would not have owned it leveraged 50:1. But who knew that Americans would decide to quit making mortgage payments and abandon their homes?

Who's Gaining from the AIG Unwinds?

IF the story is rue, it still has little to say about the AIG-FP employees.

The employees put on the book of businees at the direction of the overlords. They were directed to increase the amount of CDS or insurance outstanding and generte more premium.
Likewise with the unwinding. The overlords at Treasury who are directing this company, and with very little real knowledge of the business, have ordered the winding down and close out. Certainly it would change the prices for this stuff in an illiquid market. The traders carrying out the policy are not the problem.

My Response to Soros' Views of CDS

A CDS is no different from a bond market version of a stock Put or Call. Will Soros next call for those to be prohibited. Or available only to owners of the shares?

He made a lot of money, granted. However, all of his ideas are not good ones.

Did CDS Cause All the World's Ills? Confronting the Crisis Backlash

Thanks for a very good article. One thing you did not include when comparing to the fire insurance analogy is that someone from the insurance firm actually looks at the property being insured to see if it is worth the insured value. A problem in the CDS market is that the appraiser was not representing the insurance company. AIG and others relied upon the ratings agencies for that service.

AIG Bonuses Are Just the Tip of the Iceberg

I really like these talking head CNBC hyperventilators discussing the AIG or Merrill bonuses. GE would be down the tubes months ago without the Fed guaranteeing their debt so they can roll it over. What does a CNBC shouter get in pay? Should it be decided by the House Finance Committee?

The AIG Life Insurance Numbers

The money comming out of one insurance policy will most likely be moved into another one. All that changes is who gets to shear the sheep.

Wall Street's Worst Invention Ever: Credit Default Swaps

CDS were a great invention. The problem was and is that there is not a clearning house such as the CBOE. That would require the sellers to put up the collateral for the insurance they sold. A CDS is not much different from a Put options from the liability standpoint. Should Puts and Calls also be banned?

For Insurance Companies, Is a Crisis Looming?

I sure agree with your point. I wonder if all of the complainers about Mark to Market believe it would be OK for me to cash out of my Mutual Funds based upon last August's values. That would leave them holding the rest and they could believe that their shares were worth the same as last August also.


On Feb 28 12:13 PM F. Bradeen wrote:

> I get sick and tired about the complaints about mark to market accounting.
> All I know is if I am on margin and the price of my stick drops too
> far, I get a margin call via mark to market regardless of its 'long
> term' value. end of discussion. Don't drop mark to market rules.

Finally, Some Disclosure from Companies That Received Bailout Funds

There is no way to answer the question about "which loans did the Fed money support." Neither can the banker tell you which loan was made with the money you put in your CD. Anyone asking the question is exhibiting that they know nothing about banking.

Great Depression Not Imminent, But Inevitable

Pretty good analysis of why the trade situation will take a very long time to improve. E_nuff_seyd misses the pooint. It does not matter about the asset price. If you lose $1,000 you lost $1,000. It does not matter if the marbles cost $100 each or $0.10 each. You ship to the other side of the world and nothing comes back - you lost.

AIG's Speculative CDOs in Perspective

The fact that the buy of the insurnce did not actually own the specific bonds is not particularly material to the need for the insurance. The buyer may have the basket of similar assets of like quality and use the different basket as the substitute.

Suppose you have hurricane insurance on your home. A storm is forecast. Can I buy from you one half the coverage of your losses, leaving you net 50% insured, when I am not able to instantly buy coverage fro my home? If we agree on a price, it would be possible. No different in the CDS structure.

AIG Bailout 2: Why?

As others have commented, AID is having to post collateral based upon a Mark to Market valuation of securities which no one is actually selling. The securities may not have suffered defaults, but they have been marked as if they will. Calling their bluff and having them turn over the bonds will cause there to be at least some market. Any appreciation and the current payments will accrue to AIG. The coupons may be reasonably current. Taking the 6% bonds in at 50% will give AIG a current yield of 12 and retire the debt to Treasury. I like the idea but more needs to be known about the particular bonds being called in by AIG.

AIG: How It Spent Your Tax Money

najdorf has hit it squarely.
AIG sod the insurance either too cheaply or did not understand the credit quality of the paper it was guaranteeing. Both are the same effect.

Once AIG had to post the additional collateral because of the downgrade, they were looking at bankruptcy. The effect of the govt. plan on AIG equity holders has been about the same as bankruptcy. However, it was not necessary to destroy the rest of the financial system because AIG screwed up. The govt. money will come back when the different parts of AIG are sold off. Not much different from having a short term loan against land holdings. Banker calls it and you could be introuble. Something has to be sold - better to do it in a few months rather than a few days. I sure don't see this as a nefarious bailout of the "good ol boys network". When the parts are sold, the govt will be whole. AIG Shareholders took the licking.

AIG: How It Spent Your Tax Money

I'm simply amazed at the blather on the idea of selling or buying "naked" CDS. Hell, the stock options markets have that available at all times for anyone. It has been done for hundreds of years with commodities. The availability of CDS did not cause the failure of any firm. The stupid pricing or mispricing has been the problem, mainly becuse there has not been a central clearing agent requiring collateral.

Suppose Today I sell a naked puts on the 100 stocks in the Naz 100. At the same time I buy puts on the NAZ 100 index. It is an arbitrage on the insurance premiums. Does that cause AMZN to go broke? It is nonsense to suggest that it does.