Thursday, November 26, 2009
AIG, the Sequel
"After shelling out billions of dollars to Wall Street banks last year on souring trades, [AIG] has gotten some of that money back, thanks to a turnaround in the very securities that helped to level the insurer. ... For the second quarter, the figure may have topped $3 billion, public filings suggest. Goldman Sachs Group Inc. [GSG] has sent back at least about $1 billion, said people familar with the matter. ... The cash that AIG is getting back from Wall Street is tied to credit-default swaps, which act as insurance policies on securities backed by assets such as mortgages and pay off in case of default. ... The development highlights how the government's decision last November to close out many of these trades aided big banks while costing AIG a chance to get billions of dollars more in collateral back in any rebound. ... Two months after the bailout, the government adopted a new strategy. The [Fed] of New York helped create an entity called Maiden Lane III to buy the underlying investments, and arranged to terminate many of the swap contracts. That was a boon to the banks, which were effectively made whole. The banks pocketed $35 billion in collateral AIG already had paid them, and collected another $26.8 billion in cash for selling the investments at roughly their lowered values. [GSG] got to keep billions in collateral and got paid $5.6 billion for the investments. ... Others have contended that AIG's trading partners should have been forced to accept less money for tearing up the contracts", my emphasis, Liam Pleven at the WSJ, 30 October 2009, link: http://online.wsj.com/article/SB125677194092914501.html.
Vampire Squid (VS) almost always wins! What is the Fed for, if not to ensure VS is well Fed?