AIG Goes For Re-Broke, Offers To Repurchase Toxic Subprime Portfolio From Fed For $15.7 Billion

Tyler Durden's picture

When a bankrupt zombie company offers to purchase from the Fed the very instruments that put it in bankruptcy in the first place, and which the Fed was forced to put on US taxpayers in order to perpetuate the status quo farce, you know the words Banana republic don't even start to begin to express the describe the lunacy we live in.

From Reuters:

  • Submits offer to buy all of rmbs owned by Maiden lane II for $15.7 billion

  • If accepted, this offer will substantially reduce the amount of
    government assistance to AIG
  • If accepted, offer will guarantee frbny earns a profit on its interest in
    Maiden lane II
  • Says total outstanding assistance from U.S. government will be reduced by
    about $13 billion to total of about $26 billion
  • Says conditions that necessitated Maiden lane II have been resolved
  • Aig's outstanding assistance from the U.S. government totals approximately
    $39 billion
  • Says is offering to purchase all of the approximately 800 rmbs owned by
    Maiden lane II in a single transaction
  • Anticipates more than 98 percent of Maiden lane II securities will be
    classified as naic 1 securities by regulators
  • Says does not expect the transaction to have a material effect on its
  • Says set aside the cash necessary to pay the purchase price in full

Incidentally, $15.7 billion is below the value the Fed has Maiden Lane II marked at as of today, which is $15.9 billion. We are confident that this will not prevent the Fed from doing everything in its power to bend over to the nationalized insurer's demands.

And yes, Maiden Lane was created by the Fed to front the insolvent AIG cash back in 2008, and purchase AIG's own toxic paper. To wit:

Purpose: ML II LLC was created to alleviate capital
and liquidity pressures on American International Group Inc. (AIG)
stemming from its securities lending program by purchasing $20.5 billion
in residential mortgage-backed securities (RMBS) from several of AIG’s
U.S. insurance subsidiaries.

Terms: The New York Fed lent ML II LLC
approximately $19.5 billion. The loan has a 6-year term and accrues
interest at 1-month LIBOR plus 100 basis points. The AIG insurance
subsidiaries agreed to defer receipt of $1 billion of the purchase
price. The fixed deferred purchase price accrues at 1-month LIBOR plus
300 basis points.

Investment Objective: Maximize the long-term
cashflows of the portfolio to repay the New York Fed’s senior loan
(including principal, interest, and residual), while refraining from
disturbing general financial market conditions. Monthly loan repayment
commenced in January 2009.

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NewThor's picture

Toxic is the new GLD.

Judge Judy Scheinlok's picture

It's only plated in toxic, there is gold underneath. These guys know their stuff, trust them.

fx's picture

Exactly. The $45 warrants (exp 2021) look like a decent play - and one could sell some Jan 13 calls against them which carry almost double the implied volatility..

Weisbrot's picture

things are getting even more interesting. like find the ball under the 3 cup game except, here we have many cups. (and the "powers that be" have no balls to deal honestly)

citta vritti's picture

Can/will proceeds be POMOd? If so, almost a week's worth, so FRBNY may be buying ahead.

assumptionblindness's picture

This reminds me of a dog eating its own vomit.

johnQpublic's picture

if they owe the US government 39 billion, how are they allowed to 'buy' anything 'til they pay back what they owe?

Rainman's picture

Money laundering is an endorsed and approved program under the emergency powers act.

IQ 145's picture

 Christ; I feel like I'm living in a giant mental asylum.

steelhead23's picture

Nurse Ratched says, "take your pills."

sodbuster's picture

And the inmates are running the asylum.

James's picture

Yes, and the inmates are running it.

EscapeKey's picture

...when performed by players in the circle.

MsCreant's picture


Stop it, my sides are huuurrting.


Or is that my ass?

They're, coming to take me away, ha, ha,

They're, coming to take me away, ho, ho,

He, he, ha, ha,

To the funny farm where life is beautiful all the time with chirping birds and...


New reality TV show tonight at 8:00 pm:

Extreme Dissonance

RockyRacoon's picture

Are you finally going over the edge, Missy?   You're a hoot.

I can't wait for the smoke to clear on this deal to see how badly the average U. S. citizen has again been screwed by the FIRE sector.   This cannot turn out well.

arm50's picture

the fed's balance sheet may actually contract

Judge Judy Scheinlok's picture

There are lots of rug out there used to sweep the dead roaches under.

Everything is going to look very peachy in about 6 months.

viahj's picture

just another signal that QE3 will be delayed.  there will be a smash down of equities/commodities and asset deflation 9get this shit off of the FBNY's balance sheet now, let AIG take the hit, again).  the temporary rush into treasuries will give the Treserve enough time before the people realize that the economy is still shit and the bureaucrats start demanding that Bernanke saves us yet again.  i'm anticipating the epic BTFD opportunity though.

UninterestedObserver's picture

EXACTLY - screw QE3 they will blow up AIG again and maybe 1 TBTF bank and do TARP II, this time it will be for a few trillion

buzzsaw99's picture

benmouche and the ny fed screwing the goyim again.

IQ 145's picture

 Oy Vey ! On it goes, already.

buzzsaw99's picture

I could have said "joo york fed" but that would have been redundant.

buzzsaw99's picture

Allow me to quote the Bard:


Double, double toil and trouble;

Fire burn, and caldron bubble.

3rd WITCH:

Scale of dragon; tooth of wolf;

Witches' mummy; maw and gulf

Of the ravin'd salt-sea shark;

Root of hemlock digg'd i the dark;

Liver of blaspheming Jew;

Gall of goat, and slips of yew

beastie's picture

Is that offer at fair value, market value, made up value and paid in pixie dust?

MsCreant's picture

Ass wiping value. It's fiat, does it matter what we call it? Does the number of them matter any more? It is all fiction. At least a good dose of pixie dust might be worth something though...

Duuude's picture



It's Pixeldust

MsCreant's picture

Good editing, I missed that.

Catullus's picture

If the bonds are worth so much, then why not bid them back out to market instead of allowing AIG to no bid them?

assumptionblindness's picture

ding ding ding ding! 

It is obvious to me that the $15.7B price is WAY ABOVE what the securities are worth on the open market.  Only a government owned company would fork over that kind of taxpayer dough and say that it was a good deal. 

Bananamerican's picture

"hey, Tarp I was paid back...We even made money on the deal!"

-John Q. Public

Ponzi + 3 card monte= win/win

godzila's picture

Anyone care to explain the rationale behind this move ?

francis_the_wonder_hamster's picture

Sure.  This is just the first step.  Next AIG will "buy" the toxic assets of the TBTF banks and then they'll declare bankruptcy.  Problem solved.

Bill D. Cat's picture

Wasn't this an episode of South Park ?

NumberNone's picture

You got it.  Fed holding a fucking bomb in their lap and they see the timer down to 00:05...time to hand it back to someone they won't feel bad about blowing up. 

Vanderdekken's picture

Not a bad idea... put together all the toxic assets into one company and then play titanic....

buzzsaw99's picture

It has to do with exceutive bonuses. Look busy.

cosmictrainwreck's picture

hahahahaha! one of the better one-liners here.....

Rainman's picture

Best guess is it's a gesture move to shrink the Fed portfolio.....even though $15b is a relatively short piss in the ocean. Could be a reverse screwing too.....the $15.9b Fed valuation might really be $9b FV. Who really knows which is the fly and the spider in this tangled web but the Berank ?

IQ 145's picture

 Yeah. I think. Public relations; it's all part of the emotional tone picture; the warm and fuzzy feeling of the new recovery; also, commish. fees. etc. "A little slice offa the top, for you, eh. Benny". etc.

Fearless Rick's picture

Yatszeeeee! Complete PR prank designed to deflect attention away from the 200+ point shitbomb the Dow laid today.

Will work on some; won't matter long term.

We're fucking doomed.

tony bonn's picture

"Says conditions that necessitated Maiden lane II have been resolved"

yes - low bonuses in 2008 were rectified with taxpayer money and low levels of control of the country by banksters have been increased dramatically...

and most importantly, the criminal, corrupt, and incompetent management of aig was allowed to survive in order to lumber on to another catastrophe....


Scottj88's picture

Learn about why all of this is really going on.  There international bankers will stop at nothing, as foretold by Aaron Russo who was in contact with the Rockefellers before passing.  He denied becoming a member of the elite, as he wished to help the people of the world.  Please give his work the respect it deserves.

EscapeKey's picture

That company should not even exist.

Anyone connected to it should be bankrupt.

And yet, we live in a societe where jackals such as this prosper.

This story wants me to fucking torch their buildings tomorrow. Fucking leeches.