The AIG CDS Unwind Investigation Begins

As Zero Hedge reported first, strange things happened in January and February when AIG was allegedly unwinding CDS trades with its trading counterparties. As we reported, the taxpayer funded loss that AIG presumably experienced on wholesale CDS unwinds may have well been the reason for the banks' reported trading profitability in the first 2 months of the year.

Today Neil Barofsky, special inspector general for the TARP, has taken our assumption a step further and has launched a full blown probe into just what may have happened into those two fateful months.

Legislators want to know if AIG offered less to retire the contracts and whether there was any review about banks’ ability to sustain losses on the derivatives.

“To what extent did AIG pay counterparty claims at 100 percent of face value and was any attempt made to renegotiate and close out these claims with ‘haircuts?’” Barofsky wrote. “Questions concerning whether AIG paid more than necessary to counterparties and whether Treasury adequately monitored such payments are clearly relevant.”

It will be interesting to see whether an affirmative outcome of the probe will lead to the banks forfeiting any above normal trading profits due to unethical trading practices.

Zero Hedge will continue to strive to provide light into those opaque situations that allow the "sophisticated" financial professionals to take advantage of all known loopholes at the expense of U.S. taxpayers. We are happy to have been beneficial in this endeavour.

Comments

[Valonia (not verified)]

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

Ann

http://racingonlinegames.net