Wednesday, October 8, 2008

Yves Smith on AIG

Yves Smith has a 27 September 2008 post at her Naked Capitalism worth reading about who or what benefitted by AIG's $85 billion bailout. Can you guess? Goldman Sachs (GSG), who else? The Bloodless Coup continues. Imagine, Americans are now GSG's serfs. Here's an interesting coincidence: GSG suppposedly had $20 billion of exposure to AIG credit default swaps. On 14 September 2008 Eric Dinallo (ED), New York State Insurance Commissioner let AIG's insurance subsidiaries upstream guess how much to the AIG parent? Did GSG's Lloyd Blankfein call ED, who said, "Yes boss. How may I help you"?, the link:

"Could a company receiving an $85 billion loan from the government still go bankrupt? Maybe so, and thereby hangs an increasingly odd tale. ... In fact, the further we get from the New York Fed's takeover of AIG, the worse the transaction appears for both taxpayers and shareholders. ... The Fed has justified its intervention on systemic risk grounds. But AIG is not a bank. ... Its credit default swaps, with a notional value in the range of $440 billion, represent less than 1% of the CDS market. To sustain the systemic risk argument requires an explanation of the impact on particular counterparties. AIG doesn't disclose them. The government should tell us which counterparties it was protecting, if it's using them as a justification for putting $85 billion at risk", Editorial at the WSJ, 2 October 2008.

AIG's CDS problem was concealed by poor accounting. Problems frequently are. CDS should not exist. They are pure gambling games. CDS "risk" is uninsurable. Unlike say life insurance, which can be sold because mortality rates are fairly stable, credit default risk is highly correlated and unstable. That AIG ever thought it made money selling CDS is a product of bad accounting. I wonder if AIG's CPAs, PriceWaterhouseCoopers (PWC) will be called to account for this mess? Well Mark Olson and your useless, craven PCAOB. We're waiting. Will PWC be sued into oblivion? See my 20 February and 7 March 2008 posts on AIG:

Yes, it would be nice to know how much GSG gained from the AIG bailout.

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