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Enlighten Me: WHY Should AIG Have Paid Swaps at < Par?
Washington links to a Bloomberg story quoting Tavakoli, “There’s no way they should have paid at par,” she says.
“AIG was basically bankrupt.”
Washington (through Tavakoli, it seems) claims that Goldman CFO David Viniar lied when he said the boys from 85 Broad would have been more-or-less fine even if they'd received less than par on the AIG swaps in question.
I've yet to check with Janet or Washington, but unless either was (or have since become)
privy to the detailed trading books of both AIG and Goldman (as well as the
other counterparties), term sheets of OTC trades, and collateral
quality/levels at or around the time such payments were made, that claim is unwarranted, at best.
Just because Vikram & Friends received a 40% haircut on a COMPLETELY UNRELATED CDS settlement with AMBAC doesn't mean, by any stretch of the imagination, that the AIG settlement should have been treated the same, or even similarly; To say, or even imply otherwise is a serious non-sequitur considering the terms of the contracts, the situation during which the transactions occurred, and the participants involved were so drastically different.
Now, Janet is far smarter, and no-doubt much more tied-into these things than I, so I'm curious why she's taken such a hard-line stand on the GS-AIG settlement, unless she knows both firms' positions better than they did themselves.
Also, I'm curious - although unsurprised - with all of the outrage towards just Goldman. As the Bloomberg article says, SocGen was paid significantly more than Goldman; AIG paid Societe General $16.5 billion, Deutsche Bank $8.5
billion and Merrill Lynch $6.2 billion.
Look: I don't have all the answers, but it doesn't take much to realize that more often than not, those who claim to, don't.
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Galleon was collateral damage done from a Tamil Tigers investigation. Had nothing to do with Wall Street.
A Tamil Tigers investigation, what a joke. . They just implicated AMD former CEO to Galleon at the time Intel is facing anti-trust charges in the US. Intel and IBM are at the center of the MIC technology network. I don't believe for a minute this is a random event. It has the added advantage to deviate attention from the large hedge funds that are about to crash markets again.
Oct. 22 (Bloomberg) -- Roomy Khan, the informant who is cooperating with prosecutors in the insider-trading case against Galleon Group LLC co-founder Raj Rajaratnam, previously worked at Intel Corp.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ayVN2gZFwxhU
Appreciate the advice, but I will stay outraged, thank you very much.
The lack of outrage over this incident is what is keeping criminals from being prosecuted. If Tavakoli's theory could be investigated, I'll give you the Chumbawamba guarantee that this version of events is far closer to the truth than anything else that has been offered up.
However, that being said, I'd still buy you a beer and agree to disagree.
Like I (tried to) say (said), I don't necessarily doubt there was plenty of unscrupulous bullshit that went down, until any of us have access to the contracts, trading records, and oodles of other information (which we may never), its hard to say with certainty that which Tavakoli claims.
Also, beers between parties who don't agree are usually the most interesting conversations. Sounds like a plan!
Listen to yourself!
You are everything that is wrong with this website.
As Deniro said, "you talking to me?"
"And guess what, I'm pissed ANY of those banks got paid."
I'm pissed that the situation occured but if it means I get to sit here with electricity to my computer instead of having to cook my dinner by candelight (that I had to hunt down and shoot) becasue western civilization ceased to function I guess I'll be pissed at the situation and pay the tax bill. Not my optimal outcome, just less bad.
Nicholas Biddle tried that twinkie defense in 1832 when Jackson revoked the charter of the Central Bank then. Your excuse for this criminality is a recycled one.
and after the charter was revoked a financial panic followed. So doing the equivalent during a panic would have done what?
You can't be serious.
Yes, I am completely serious. Yes there was a financial panic, a manufactured one by those who stood to lose the most. As in today, Biddle had many politicians in his pocket and other influential connections. They tried every kind of panic they could to create a self-fullfilling prophecy.
I understand that point. I get it. What I am telling you is this: the "end of the world as we know it" has been offered up as a defense of this criminality. But for that to operate as a defense, all of the facts must be known, and the decisions on how then to proceed made according to the rule of law. This is not what happened here. It is not the truth. The factgs have not been made known, they have been actively concealed.
I am begging you as a sensible person to open your eyes and see the truth for what it is. You were lied to.
Red pill or blue pill, you decide.
Could you possibly stop the red pill blue pill tripe! The point was that if you are going away from capitalism, which is clearly the case, the sequence of events after that decision are very predictable. Yes, most all of us understand, even before your ad hominem attacks, that these useless pukes we call our government violated law (contract law specifically) and the constitution (the enforcement of legitimate contracts) and of course they won't go after their paymaster(s) on wall street. That being said, a main purpose of this site is to truthfully inform about various aspects of the current financial markets. Leave the diatribe to yourself ------ PLEASE!
I wish I could understand what the point is that you are trying to make. What part of the truth did I leave out?
Ned, for some folks a truth is a matter of perception manipulated by circumstances... What we need and what you are calling for are demonstrable facts. Unfortunately, some folks reside outside of the rule of law so whatever is offered up is by this very circumstance made worthless.
Never mind.
Ned Zeppelin, I applaud your commentary on here. Thanks for cutting through the absurdity.
It isn't that I don't understand. It is quite infuriating to see virtually no change. It is unnerving that the shareholders that hired the managers have shares that are worth anything at all.
The price of going to the fed for $ should be shares worth zero. Bondholders own the company.
We won't get that now. It is criminal. Agree.
Re: the outrage toward Goldman
I am not aware of any other recipient of AIG bailout money proclaiming, as Goldman Sachs has, that their firm had no material exposure to AIG's potential failure. Goldman Sachs invites scorn by continuing to argue that they were indifferent to the source of the $12.9 billion they received; remember, they say they were fully hedged. Blankfein went so far as to explain to Holman Jenkins in a WSJ interview that thanks to nightly collateral calls (against contra firms other than AIG) GS had no more than $300 million at risk (from AIG exposure) on any given trading day. It seems sort of obnoxious for GS to continue to blandly assert that they had no need for taxpayer money via AIG without also explaining why it was better to take the taxpayer's money rather than collect on the hedges they had in place. And as I noted earlier, what I would really like to know is who provided the AIG-related hedge to GS, is that counter-party still shouldering similar risks, and will the taxpayer once again be forced to pay off GS (or any other bank, for that matter) to prevent settlement of so-called hedges?
You have nailed it here with the key piece of this puzzle: who was the GS counterparty in the hedges Blankfein trumpets?
If they actually had the hedges on, I'm guessing Sogen. But I would love to know.
Isn't the fact the government (wrongly) bailed out this company mean it wasn't bankrupt? Since it wasn't bankrupt and got this dubious capital injection wasn't the next step to fulfill its obligations i.e. margin and collateral calls to counter-parties. Normally if it ain't bankrupt you aren't taking cents on the dollar.
Yes but a bit fishy when Friedman buys almost 40,000 shares of GS on the information and also a bit fishy that since we paid them out 100% they go on to give about 70% of earnings to employees for bonuses. I see a one way street here.
You think Friedman made it happen? I think you're giving one man too much credit. I'm not going to address whether he should be investigated for insider trading, as its tangential to my point. Also, please re-read my post, why did SocGen get more than GS, yet no one is fingering the French (I couldn't help myself) about it?
Was SocGen paid out, 100%? A neighbor of mine, privy to some of the goings on at the time, said GS was the ONLY bank to get 100% pay out from AIG, all others took some kind of a haircut.
Could he be wrong? Possibly. But I don't think so. He's no GS basher, but he thinks AIG was essentially GS getting the government to prop AIG up so GS didn't topple.
So that makes it ok -- that SocGen got paid out as well? Friedman is not tangential to your point. It points to the fact that they placed their self enrichment over that of the taxpayers. It means that it's not such a stretch to assume that they bailed out AIG to help a few over that of the taxpayer. Are you blind? Should we assume that there was one person in the room actually standing up in objection saying "No, we have to keep in mind what is fair to the taxpayer."
There is no financial argument to justify par settlement from a bankrupt counterparty on any deal, bonds, derivatives, whatever.
But AIG was not saved because of GS, it was saved because EU banks were exposed. One of those bank goes and it's all over, about 10X Lehman event without a government big enough to save them. This still may happen if Eastern Europe goes down.
http://paul.kedrosky.com/archives/2008/09/30/how_the_us_save.html
But I guess the question is whether you have a 10x Lehman event if AIG is saved but pays counterparties 80%.
Then again, GS is not above the money under the table deals. The Mexico Crisis in 1995 comes to mind with WS choke full of Tesobonos that would had wiped them out. Who engineered the bailout? Then Treasury Secretary Bob Rubin. GS is just scum. Their lack of reputation is well deserved.
IMHO, I think we can't even begin to discuss these types of issues without looking at the big picture, the REAL reason that CDS became dangerous.
"The key point is that neither the public, the Fed nor the Treasury seem to understand is that the CDS contracts written by AIG with these various non-insurers around the world were shams - with no correlation between “fees” paid and the risk assumed. These were not valid contracts as Fed Chairman Ben Bernanke, Treasury Secretary Geithner and Economic policy guru Larry Summers claim, but rather acts of criminal fraud meant to manipulate the capital positions and earnings of financial companies around the world.
Indeed, our sources as well as press reports suggest that the CDS contracts written by AIG may have included side letters, often in the form of emails rather than formal letters, that essentially violated the ISDA agreements and show that the true, economic reality of these contracts was fraud plain and simple. Unfortunately, by not moving to seize AIG immediately last year when the scandal broke, the Fed and Treasury may have given the AIG managers time to destroy much of the evidence of criminal wrongdoing.
Only when we understand how AIG came to be involved in CDS and the fact that this seemingly illegal activity was simply an extension of the reinsurance/side letter shell game scam that AIG, Gen Re and others conducted for many years before will we understand what needs to be done with AIG, namely liquidation. Seen in this context, the payments made to AIG by the Fed and Treasury, which were then passed-through to dealers such as Goldman Sachs (NYSE:GS), can only be viewed as an illegal taking that must be reversed once the US Trustee for the Federal Bankruptcy Court for the Southern District of New York is in control of AIG’s operations."
info@institutionalriskanalytics.com
They are "acts of criminal fraud" because they "MAY have included side letters". Sorry that doesn't cut it.
No one at AIG would now squeel to get revenge for Goldman's collateral call? Suprising but not impossible.
How do I know that you aren't short AIG and getting a margin call yourself? Or looking to buy GS cheaper? Funny you only focus on them and not the foreign banks. I really find that as odd as your use of the word "MAY" hidden in the paragraph after you state definitive criminality.
which is why the ownership of AIG will remain under the umbrella of the NY branch of the FED. there is a reason why their building is built like a fortress.
GW- good link. The issue comes down to risk management. My background is futures industry. The CME wants enough margin to cover a 2 std dev move overnight. If it moves that or more you have the same requirement the next day and the next.
All the big brokers got together in the late 90's and started their own exchange because they didn't like having to post all that margin money. They all wanted more leverage.
Their exchange failed. It was called brokertec. And guess what? AIG went down because they were their own risk manager and didn't have enough margin. The CME never missed a beat during the chaos last fall and were busy merging systems with recently aquired CBOT and NYMEX.
You can't let these IB guys be their own exchange. They are the fox guarding the henhouse.
Fail: http://www.accessmylibrary.com/coms2/summary_0286-19364026_ITM
Fantastic link. Required reading.
At the heart of all of these problems is the black hole of the State and it's distortions of economic law. Greed is a human constant. However, when combined with a state guarantee of potential losses, it's powers of destruction are almost limitless.
I dont' disagree with you per se, big picture wise. I just think without full information its impossible for Tavakoli to make the claims attributed to her, ya' know?
I like your stuff, keep up the good work!
If Goldman wasn't in financial distress they would have never changed to a bank holding company under FDIC and FED. They did that so they could issue FDIC guarenteed paper and access Fed Funds window. So YES I THINK JANET HAS ENOUGH INFORMATION.
May I say, "BINGO!"
Full information will never be available without subpoenas--and so if you suggest that this type of analysis and extrapolation is not fruitful in viewing hidden truths, then what is the point of anyone who works using analytical skills? Your statement " without full information its impossible for Tavolaki to make the claims attributed to her..." is really baseless, but i mean you no offense.
Perhaps this is a small part of the accumulative questioning of just how does Goldman Sachs get so lucky so often?
For Example: How lucky for them that their former CEO just happened to be the Treasury Secretary at this critical moment for them.
You know...stuff like that...
Janet would be far more aware of the types of deals that were settled in the FG industry vis-a-vis the AIG deals than you are.
You can't insure these things like this. It's a zero sum game. If you want 1 billion in protection you have to have a billion or pay say 900 million for the protection. This is just a scam. All insurance will fail as it does this with consumers. They are basically leasing people thier own car even though the chances of failure are not as high as the chances of credit defaults or other derivitave activity.