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Is The Fed Facing Margin Calls From European Banks?
by Marla Singer and Geoffrey Batt
Buried in the depths of page 26 of the Office of the Special Inspector General for the Troubled Asset Relief Program's (SIGTARP's) November 17, 2009 report "Factors Affecting Efforts to Limit Payments to AIG Counterparties" hidden in footnotes 33 and 34 is something of a mystery. It might be the beginning of an interconnected financial chain involving Dubai, the Federal Reserve, AIG, Basel I, Eastern Europe and even Switzerland and which, even if it doesn't worry you, probably should. Or it might be nothing at all.
Consider first "footnote 33," that reads as follows:
The first Basel Accord, known as Basel I, was issued in 1988; it focused on the capital adequacy of financial institutions. The capital adequacy risk—the risk that a financial institution will be hurt by an unexpected loss—categorizes the assets of financial institution into five risk categories (0 percent, 10 percent, 20 percent, 50 percent, and 100 percent). Banks that operate internationally are required to have a risk weight of 8 percent or less....
The original paragraph that references the footnote reads thus:
As of September 30, 2009, AIG had $172 billion in exposure to swaps in its foreign regulatory capital portfolio. The portfolio contains swaps purchased by financial institutions, principally in Europe, to provide regulatory capital relief under Basel I. [note 33] AIGFP’s COO informed SIGTARP in July 2009 that they expect that most of these swaps will be terminated by the end of the first quarter 2010 as most financial institutions complete their transition to Basel II. Currently, financial institutions are required to hold a certain level of capital against their assets, and one way for a financial institution to reduce the amount of capital is to purchase swap protection on its assets. However, new requirements decrease the level of capital required for such assets and, in most cases, there will be limited capital benefit to holding on to the existing swaps. Nonetheless, AIG warned in a June 29, 2009, SEC filing that if credit markets deteriorate, the company may recognize unrealized losses in AIGFP’s regulatory capital credit default swap portfolio. [note 34] AIG could continue to be at risk if the swaps in its regulatory capital portfolio are not terminated by the end of first quarter 2010 as expected. (Emphasis added).
Taken together we read the thrust of this section to mean that a number of European banks, seeking to limit their regulatory capital requirements under Basel I (read: seeking to increase their leverage) bought swap protection on their assets from AIG. These obligations still sit with AIG and, in the event credit markets sink materially, AIG is likely to take losses on these instruments. Not just that but:
According to an AIG SEC filing, an ongoing concern for AIGFP is whether it will have to post more collateral if credit markets continue to deteriorate. The amount of future collateral postings is partly a function of AIG’s credit ratings, which may be affected by any further decline in AIG’s financial condition. (Emphasis added).
Simply put, AIG might also have to post more collateral. Moreover, though AIG initially expected most of these swaps to "be terminated by the end of the first quarter 2010 as most financial institutions complete their transition to Basel II," we see from footnote 34 that:
Subsequent to the June filing, European regulators adjusted the implementation timing of Basel II, potentially affecting the holders of AIGFP’s regulatory capital swaps to hold beyond previously anticipated termination dates.
In other words, AIG is still on the hook- and hadn't planned to be.
This raises a number of questions:
- If the European banks that bought swap protection from AIG are still relying on this protection to meet their capital requirements, and AIG might be unable to make good on the agreements, are these banks actually out of Basel I compliance as we type this?
- Are the banks still able to use swap protection to reduce their collateral requirements because of the implicit or explicit backing of AIG by the Federal Reserve?
- If this situation existed in September-November 2008, as it certainly appears to have, how exactly can the Federal Reserve claim in good faith that it lacked the leverage to negotiate with these banks from a position of strength? (One assumes that many of the same names collecting payment from AIG were also AIG swap protection buyers of the sort mentioned in the SIGTARP report). Failure to back up an insolvent AIG would have resulted in near-immediate Basel I non-compliance as the protection offered by these swaps, and on which these banks depended for their reduced capital requirements, evaporated- a near death sentence.
- Or had these banks somehow, and in the middle of the credit crisis, managed to boost their capital to levels that made the swaps unimportant?
- If so, why keep them on the books now, instead of unwinding them?
- Since it doesn't seem likely that a teetering AIG could make good on these agreements without substantial assistance is the Fed is currently the ultimate backstop for AIG?
- Does this mean that the Fed is effectively underwriting these swap agreements?
- Will the Fed post collateral if deteriorating credit conditions at AIG (today's -$11 billion news suddenly seems especially daunting if the potential insurance shortfall has an effect on credit ratings) or general credit market issues require it? Or are we missing something significant? By September 30, 2008 AIG had already posted $974 million in collateral for its "Foreign Regulatory Capital" portfolio.
- What if European banks are hit with more losses from, oh, we don't know, say... Dubai? Deleveraging, risk reduction and credit tightening would have an effect on LIBOR, the Eurobond market and, of course, Eastern Europe. Might not that sort of contagion easily spread to, say, Switzerland, which enjoyed the other side of the carry trade for years by lending Swiss Franc like mad to any Eastern European mortgage borrower who could sign documents?
- Could it be that the Fed, once again, might have to bail out the world?
Or maybe we are just missing something obvious.
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LMAO!!!
And where's the music, bitch? Don't get uppity just 'cuz Brad Pitt thought he was having sex with you, until it turned out he was only Ed Norton. A lot of people thought that movie was about finance - idiots. It was about that Planet of the Apes chic getting boned by Norton, thinking he was Brad Pitt. HA!
Bah, check my previous posts. I add to the conversation once in a great while. Okay, I don't.
I got it. I got it. Shit, I lost it...
Thought you had some really great, out there sarcasm happening, but then I realized it was nothing but a personal attack.
Shame.
No personal attack. I'm not Eminem goin' off on her Moby. Love the grind. Used to party with Victoria's secret models. They love that stuff.
Seriously, no personal attack. Haven't been her in quite some time. Am loaded up on white russians to the gills, though.
Listen, that was some really fucking funny shit, but when you started calling out Marla, that's too far, son. If you have rapport with Marla and she knows you're cool, then that's one thing. But there's no reason to blow her up like that.
Personally, I can't stand little shits who decide to go Chernobyl while hiding behind their keyboards and mouses. If that is where you're going, you're gonna walk that path by yourself.
(Al Pacino will STOP screaming at the camera, rather than attempting to act... not enough people understand how funny that really is.)
Unscarred, can't tell you exactly why but you are
really fucking annoying
I have no problem with anyone saying anything (I'm aware of that my personality doesn't fit with all, and will illicit various responses from others), but I'm continually frustrated by the fact that the most scathing posts always come from people using an anonymous profile (regardless if they're directed towards myself or others), and I've been quite forward in pointing this out on numerous threads.
While it's hypocritical that you judge me why shielding yourself from being judged, it's that same hypocrisy and lack of accountability that has put America in the dire situation it finds itself today.
Don't blame Bernanke, Bush, Paulson, Goldman Sachs, Obama, or anyone else for their own hypocrisy or greed that has caused the current plight we are experiencing. I implore you to look in the mirror and examine all of the other things you could have done better (along with the 1 in 4 homeowners in America who are underwater in their mortgages).
This is exactly what I was referring to earlier in this thread, and thanks for proving my point:
http://www.zerohedge.com/article/fed-facing-margin-calls-european-banks#...
illicit = unlawful
elicit = evoke
I suggest you open a book...one marked D i c t i o n a r y would be a good start.
I actually grinded with a VS model. Imagine that...
Y'know - for all the money and whatnot, we're all created equal. And that's why ugly fuckers end up with hot chics. They want the beauty, they want the money.
This may permanently retire my lone fan club - but it was fun while it lasted.
And hey... you can always fuck your children - until they get fat and shut their legs, like your former model wife.
If you hate me, take solace in the knowledge that I will ALWAYS be dirt poor. If nothing more that profiting off others' misery chills me to the bone.
Do not pass go, Do not collect $200 - Go Directly to Hell.
I'm in that wierd cross-space between satirical anger and religion - it's time to retire the white russians.
But be forewarned - with one internet post, I can destroy you all. From what I understand in the forums, you're all quite comfortable leeching off the misery, no? Posting on our little blogs? Who's your daddy pray tell?
They'll dig this up when I do it. Bummer.
But y'know what? As I stated in my forum post - FUCK YOU!
Until you can state in laymen's terms what the FUCK what ACTION the IGNORANT can TAKE to END this REPRESSION, you're useless fucking tools. SO FUCK YOU! Make your fucking money off the weak and ignorant and burn in fucking hell.
It's fucking awesome how you shift from drunk into religion. Suh-weet.
FUCK YOU!
The first thing you can do is take accountability for your own life. The second thing you can do is open up a book.
Rich and powerful do not exploit the ignorant and the weak. The ignorant and the weak exploit themselves through their continuously frivoluous action (see your entire compilation herein) and whore themselves out to those who have power and wealth by way of asking for a means of survival in exchange for scrubbing toilets, mopping floors, and pumping gas.
As for shifting from 'drunk' to 'religion', I couldn't tell you much about either.
The rich and powerful indeed do exploit at times. The ignorant and weak do not exploit themselves by menial labor.
The relationship is one of exploitation when one seeks advantage over the other.
I will agree with you that the rich and powerful act in their own best interests, but so do the ignorant and weak. I would also say, for the ignorant and weak, it is their own ignorance and weakness that is the root of which keeps them from acting in such a manner as often as the rich and powerful do so, much to their own demise.
I feel that the relationship becomes exploitational when one party chooses to acquiesce to the other, whereas the relenting party therefore exploits themselves through lack of initiative, laziness, etc.
I also feel that the rich and powerful do hold a very strong competitive advantage in this relationship, but (again, in my opinion) for the ignorant and weak to use this as an excuse to relent is not justifiable.
Thank you for your response. I enjoy dialogue that challenges my thoughts and believes, as it always increases either my depth of conviction or the breadth of my perspective (and sometimes, when I'm really luck, both).
You may enjoy dialogue that challenges your thoughts and beliefs, but your monologues are logic-challenged. And this is simply inchoherent:
"I would also say, for the ignorant and weak, it is their own ignorance and weakness that is the root of which keeps them from acting in such a manner as often as the rich and powerful do so, much to their own demise."
Your posts on this thread have deepened my conviction that social darwinists such as yourself are utterly lacking in compassion as well as perspective. I am, as you say, "really luck."
Does trolling random blogs, looking for people to blow up get you off!? Is your home life so miserable that you actively seek victims to inflict your own personal pain and suffering upon? Are you so frustrated by your lot in life that you sum up a person’s life experiences in a handful of statements and attempt to crush them through discourse?
Yes, I’m a Social Darwinist. Why? Because I grew up having lived on the other side of that coin and saw first hand how damaging it was. The funny thing is, as a child, I was as pleasant and compassionate as I was naïve. By the time I was through with college, I had met enough people like you to have my rose-colored glasses shattered on my FACE. That’s why I hate to see people make things person on this site (and in life, in general), why I truly pay attention when people do it, and why I said this:
http://www.zerohedge.com/article/fed-facing-margin-calls-european-banks#...
Sooner or later, I knew that you would show up, because people like you always do.
Hmmph. Spelling and grammatical errors all over this website (even from Tyler himself), and you're going to hammer me for two comments on a thread where I made 15 posts (give or take) near the end of a 20+ hour day. The real beauty of your comment is that while you’re making the world a more compassionate place, you didn't even realize that you misspelled “inchoherent.”
[Shrugging]
Brad Pitt fucks monkeys.
Okay, funny again...
Do I have a man crush on Brat Pitt? These and other deep thoughts at my new site:
http://www.newyorktimes.com
Please link to my site. I'm going broke. Maybe I should just dump the news and switch out to a "hot or not" format. But I just can't help myself. Obama or Brad Pitt? If you think those choices are hard, imagine what they make me!
OMG, Dennis Kneale's intern is back. Vendetta, vendetta.. Dude, haven't they taught you on CNBC - you ether say something of a substance or shut the F up. Wait, they haven't, so our little GS gnome, the least you could try, is to be at least mildly amusing.
Haven't they taught you @ GS gnome school to be at least amusing, wait..
You are a big meanie head. You hurt my feelings with your harsh words. You are superior to me. I accept that - but at the same time, you are indebted to me. Pay me back with kindness. Now!
Superior people are dead. I am alive and I don't believe in leverage. Therefore, I own you a little or no gratitude.
Kindness, isn't it something that has to be served cold & in a well deserved manner?
And if you need a hug, there is this organization- flag@whitehouse.org they are really good at giving free hugs & empty promises.
http://www.crashx.com
I doubt you'll get any of that, either - you fucking retard.
I run my own fucking business. I help other small businesses. As I stated in a following post, I've crossed the line from silliness to religion.
I suggest you keep your opinions to yourself moving forward, as long as I'm awake - unless you want your blinders blown permanently off.
Then again, given your reaction so far, you're too fucking stupid to recognize satire.
Brad Pitt may fuck you next, ape.
Hey, fucknuts, I'm awake. You wanna keep going, keep it on me. Don't blow others up. Stay on topic. I've given you plenty to chew on, so dig in.
As for religion, I'm still waiting, Moses. I will give you this, though... You're as crazy as any evangelist I've heard, and I'm sure that you're "help" will small businesses is just as Righteous.
to a debate team maestro (REAM the REAL), the superman, the shining ray of light in known universe:
I
I
I
I
I
I
Stop crying like a little girl, go and hug a tree for f. sake already.
p.s. Un, CB is that you? What's happening in the EU? Has the silence moratorium been approved yet?
What the hell are you guys talking about? Seriously even. I declared white russians on my first post.
And what's up with all the pipe symbols, you dipshit degenerate dickhead? Afraid I might make a fool out of you in the response - so you'd bore people with the space? Jackass.
http://www.crashx.com
Visit that and tell me to hug a fucking tree, fucknut.
I can't stop laughing my ass off! Seriously, I'm getting stomach cramps from laughing.
I really hope you eliminate the personal attacks, because your smack is as good as it is refreshing.
BUT, personal shit will not be tolerated. (Unless you want to make it about me, to which I'm totally fair game. I've got thick skin and love to bust chops.)
Fuck off, douchebag. I will scar your face with verbal lacerations until you dump your head in a pile of coke so high, Al Pacino will STOP screaming at the camera, rather than attempting to act. And then you'll be sorry.
Now THAT'S funny! Keep goin'.
I loved you at hello - or whatever the fuck Tom Cruise said to that hot chic with the kid who's now strung out on crack. Or did she say it to him? Regardless, back to ZeroHedge - SHOW ME THE FUCKING MONEY!!!!!!!
Hey, just started up a BRAND NEW site:
http://www.rollingstone.com
We're thinking about running an article that doesn't praise Obama, written by Matt Taibbi (don't worry - his dad was in the industry. We wouldn't just let him wander in without the proper croney cred.) But we feel we need to dedicate our entire editorial to apologizing for our indiscretion, to make it PERFECTLY clear that we support the Obama. And that gay dude who was on American Idol, if that helps us any. He's totally AWESOME!!!
Anyway, we need your feedback. Do we run with it or no? Given we sold ourselves out on music LONG ago, think we can make a comeback with some douchebag throwing in "cool" cursewords every other paragraph, going on about corruption in the finance world?
We don't want to anger the Obama (much less the gay dude who almost won American Idol? Or did he? Who cares?)
Any financial tips would be heartily welcomed. We hope our new site will be a tremendous success!
Solid...
I hope they like you - otherwise, I'm banned. Then I'd have to go through the trouble of registering with a new email address. It's very difficult I hear. Hope the haven't banned mailinator.
For more political views, visit my NEW NEW NEW site:
http://www.crashx.com
We're very successful, so fuck you if you don't like it.
Listen, brau, so long as you kept in on topic, you we're funny as hell. After you decided to make it personal, you fucked it all up.
You're like Lehman or Bear, you just don't know when to stop. The shame is that your dark sense of humor is the target demographic of this site (as per a thread regarding violent outbursts several weeks back).
In life, every positive is also a negative, and what makes you spontaneously funny also makes you spontaneously combustible. Once it got personal, it got out of control. (See my posts earlier in this thread on my sentiment regarding blog etiquette.)
Tyler and Marla (as far as I know) don't know me from Adam (or, at least not beyond my IP address), so don't expect my name to carry any weight during your impending plight.
And good luck with the re-registration, Taibbi (or Krugman, or Blankfeld, whoever you are). I'm sure everything will work out just fine.
If they check my former posts, I am NOT the enemy.
I've run my White-Russian posts before, with no enmity.
You recognize the satire, expect the same of your hosts.
I am NOT attacking "Tyler" or "Marla" - but I have pushed them to do more in the past.
Plus, I've crossed over from dark-satire to religion, so I'm of no use to you at this point :)
Be well.
Just for the helluvit -
Unscarred and Marla sittin' in a tree. K-I-S-S-I-N-G. First comes love, then comes marriage.
Then comes fictional baby in a fictional baby carriage :)
Again, I love our fictional Tyler and Marla for having the collective balls to create this site. But it seriously lacks a Mark Twain. And no, I am not his equal. Even for this silly blog.
But I'm certain there's some rich kid who can fill the queue :)
We really would prefer you not engage in personal attacks (unless they are really, really funny and based on a legitimate critique of someone's position) but you far overestimate the amount of moderation time we are prepared to dedicate to comments. (Also, we did ban mailinator some time ago to deal with spam).
What, nothing else!? Weaksauce.
http://www.urbandictionary.com/define.php?term=weaksauce
I'm a walkin' talkin' urban dictionary. I'm off the chains, bitch.
Also, I have menstrual issues - should I talk to my mother about them? Perhaps a walk through the park might induce a natural conversation...
Repost: But it stands alone in its frustration:
If you hate me, take solace in the knowledge that I will ALWAYS be dirt poor. If nothing more than profiting off others' misery chills me to the bone.
Do not pass go, Do not collect $200 - Go Directly to Hell.
I'm in that wierd cross-space between satirical anger and religion - it's time to retire the white russians.
But be forewarned - with one internet post, I can destroy you all. From what I understand in the forums, you're all quite comfortable leeching off the misery, no? Posting on our little blogs? Who's your daddy pray tell?
They'll dig this up when I do it. Bummer.
But y'know what? As I stated in my forum post - FUCK YOU!
Until you can state in laymen's terms what the FUCK what ACTION the IGNORANT can TAKE to END this REPRESSION, you're useless fucking tools. SO FUCK YOU! Make your fucking money off the weak and ignorant and burn in fucking hell.
It's fucking awesome how you shift from drunk into religion. Suh-weet.
FUCK YOU!
And if it helps to spawn any additional response,
FUCK YOUR MAMA!
REPOST: BUT IT STANDS ALONE IN CONVICTION:
The first thing you can do is take accountability for your own life. The second thing you can do is open up a book.
Rich and powerful do not exploit the ignorant and the weak. The ignorant and the weak exploit themselves through their continuously frivolous actions (see your entire compilation herein) and whore themselves out to those who have power and wealth by way of asking for a means of survival in exchange for scrubbing toilets, mopping floors, and pumping gas.
As for shifting from 'drunk' to 'religion', I couldn't tell you much about either.
Have a nice day.
Having read my earlier post, do you really want to start? Also, check back that I've "apologized" to our fictional hosts. I think this debate is a waste of our time.
Granted, I'm no financial guru. But if I were, you'd be fucked.
And that's not even a threat. Please review before we continue this - plus I might pass out :)
My parents met on a debate team. I'll prove to you that the world's not round before we're done.
Wow, I sounded like an ass there. No worries - the world's flat. Take comfort.
Yes, you are no financial guru, this is true. As for your apology, I'm sure it was sincere. As for whether or not I want to continue... I haven't heard no bell yet. And yes, I have read your earlier posts, which is EXACTLY why I want to continue.
You continued diatribes have all but made my arguments for me.
As for your parents, I'll bet my own margin that the only thing open to "debate" was whether your Dad's family had enough chickens and goats to offer your Mom's family.
Got anything else?
I'm gonna go pee. But I'm bored - and you were once a "fan" - so I'll host the entertainment. But I really have to piss.
Would you horribly mind stating your oppositions to my earlier posts in a new post?
Not only am I no financial guru, but these threads are impossibly difficult to follow.
I can be silly or serious - I'm now in a comfortable drunk zone.
And no, I won't check back tomorrow. I'll be moving on with my miserable life :) With my mom milking the goats so you could choke our chicken?
You gotta think- I'm drunk as fuck and I can still fuck with you. Thanks for gearing me up - but still...
You're right. Half in the bag (make that all the way), and you've still got it. I don't argue that. (Like I said, I'm as objective as it gets. Even when the bullets are hitting me square in the chest, I can acknowledge when someone else does something well.)
The real pity is that you decided to let all of that potential of yours go to waste. Are you objective enough to acknowledge that... or is that why you drink?
Good luck.
That's an interesting concept - potential. Infinite amounts going to waste so that the status quo maintains it superiority.
I'm very sad that I'm drunk at this point - my fiancee wants the computer.
It was nice chatting. I drink once a month - which lead me to this boundless idiocy - ie the endless void we call the internet.
Take care.
to R:
the action has been stated number of times:
"Dinosaurs must die!" or whoever fucked up must kiss the dirt so someone more capable will have a chance to ether be better or kiss the dirt as well.
Think of our FED, TREASURY and GOVERNMENT as of a little child. When child misbehaives, do you encourage the child for a bad behavior or do you punish that child? (often for his own good.)
At any rate, a solution the ZH proposed is simple - We all have to learn to think for ourselves, understand the source of problems and do our best to correct those or at least not to turn into source ourselves. It's all in their manifesto.
Haven't you learned to read prior to learning how to type? Or are you one of those special pawns that substitute their intelligence and will with prentense that they have really, really big balls?
Nuh uh, what u read? I like me some m-n-m's. He spokes to me.
Calling my walk off:
http://www.youtube.com/watch?v=LLqEWDo1VQk
Sleep well, psycho boy.
Oh well, fun while it lasted. If they posted it on youtube, they're rather pathetically seeking universal acclaim - something I've never sought.
I'm drunk. You and I are most likely on the same page.
So in a much more gracious manner than I offered Nostradamus (or whatever old dude he's posting as his icon), please visit:
http://www.crashx.com
You can contact me there. Maybe we are enemies- maybe not.
I'm drunk and the fiancee it calling me to bed. So fucking with you gentlemen takes a far second :)
Also, I never really intended to fuck with Unscarred, other than the Al Pacino bit :)
G'night.
Marla is hot and runs the coolest podcast ever!
As my hero, Rodney King, put it best: "Can't we all just get along?"
Does the urban dictionary carry that phrase - or are they not doing due diligence? Seriously, gotta run - away from those who would thoroughly trounce me with their superior intellect and the guy who thought my jokes were funny for a bit :) Two whole people! Gotta love this Web 2.0 :) It reaches EVERYONE!!!!!
Marla, post a lot. You make sense and I can understand you. Oh, and if you would like to meet for coffee, I'm buying.
I wondered when you were going to find this gem.
AIG had de facto capitalized half of the global banking system, didn't anyone think this might be a systemic risk, or was it that they didn't really think the Basel rules were that important?
As far as I know, most people knew AIG was a house of cards, so they must have worked on the assumption that if the shit hit the fan, either the rules would be changed or the government would step in...
So change the 8% Basel I requirement down to 5% for 12 months and pull the insurance.
Just call it Basel III.
So change the 8% Basel I requirement down to 5% for 12 months and pull the insurance.
Just call it Basel III.
It seems that the amount of bad news is ever raising. Much the same way as the stock markets. There will be a point however when it's to much to bear and the dead bull just fall over and dies.
Yves Smith is running a piece today on the increase in gun ownership among the staff at Goldman Sachs. Should I laugh or cry at what we have become?
How did Rockefeller negotiate with Standard Oil? How does one negotiate with oneself? Would the Fed survive if these banks didn't?
In-ground assayed precious metals will be utilized as the "new currency" to bail all out, wherein $172 bln is a mere pittance.
At today's mkt prices, we are looking at just one bonafide, proven claim of in-ground reserves at $200+ trillion, but of course if same became bullionized, price per troy oz would significantly decline due to supply increase, but vs. $dollar currency absorption/backing, e.g., what ratio, 10:1, or 1:1?
If you believe in precious metals as currency backing, as per above claim, then much ado about nothing, and the doomsayers will be my waiters as the DJIA hits 50,000!
So after all that..When can i start on my baked beans and put the ol faithful Tin foil hat back on cos i sure missing dem financial downturn days and dem disco nights.
Fitch Ratings has downgraded UAE CMBS VEHICLE NO. 1 LIMITED's class A, B and C notes, and assigned Negative Outlooks to all three tranches. The rating actions are as follows:
USD27.5m class A due June 2016 (XS0305277047) downgraded to 'BBB-' from 'A+'; Outlook Negative
USD12.9m class B due June 2016 (XS0305277393) downgraded to 'BB' from 'A'; Outlook Negative
USD12.5m class C due June 2016 (XS0305277476) downgraded to 'B' from 'BBB'; Outlook Negative
Sorry but going from A+ to BBB- once the shit has already hit the fan just underlines how godawful the ratings agencies actually are (Dubai property at A+ - what were they thinking have they ever BEEN to Dubai, its all jerry built overpriced crap, launched at immediate risk of obselescence due to the next, bigger, shinier and newer bit of gerry built crap being built next door?).
Thankfully, it looks like small beer but still, who buys this shit at A+ and believes it?
The European banks own the Federal Reserve. The Federal Reserve owns the U.S. Treasury. The U.S. Treasury owns every Social Security number ever issued. Now you know who will pay. Do you want to know who owns the European banks? That river flows east.
Anyone else think AIG should just be left for dead and all of it's swap agreements should just be terminated based on the end of it's legal entities?
Also why don't foreign banks take care of foreign AIG entities.
I fully understand the economic and social unrest it would cause, but at least it would take care of some of the toxic product out there instead of shuffling it around.
The shuffle is the game. As long as everyone kites checks to everyone and nothing settles, no one is caught short and no one gets arrested. When the music stops, the games would begin.
shall we call this BASEL DOOM not to be mistaken with BASILDON which is just as grim.
AIG in the WaPo
http://www.washingtonpost.com/wp-dyn/content/article/2009/12/01/AR200912...
The Fed doesn't need to guarantee any more payments on this portfolio. The money has already been delivered . What a stupid article.
Had you been following this from the date the Fed intervened you would have recalled that a significant chunk of the advance from the Fed to AIG went to satisfy collateral calls for these regulatory trades.
The Fed bailed out the Euro banks that were arbing their own regs. Not a lot of outrage about this was heard at the time due to the overwhelming emphasis on the Goldman bailout.
So the collateral is already in the hands of the Euro banks who did these trades, the contracts remain , and associated losses are already booked at AIG, as unrealized p/l effectively realized through collateral payments.
I'm glad you took the time to do some rudimentary research on BIS capital rules, and read the footnotes, but you missed the Goldman angle.
Goldman provides the pricing for a good portion of these trades (since, they originally did the deals for the banks).
Goldman's pricing (disputed by AIG) precipitated the collateral calls. One could argue GS pricing was disadvantageous to AIG, but absent a liquid market GS price was the market.
That's FANTASTIC.
Except you better tell that to TARP's Inspector General who starts the section off with: "As of September 30, 2009, AIG had $172 billion in exposure to swaps in its foreign regulatory capital portfolio."
And you should make sure the SEC is aware that AIG's 8-k of June 29, 2009 is incorrect. On that document:
"...AIG warned in a June 29, 2009, SEC filing that if credit markets deteriorate, the company may recognize unrealized losses in AIGFP’s regulatory capital credit default swap portfolio."
Also, the SIGTARP report, dated November 17, 2009 quips:
"According to an AIG SEC filing, an ongoing concern for AIGFP is whether it will have to post more collateral if credit markets continue to deteriorate. The amount of future collateral postings is partly a function of AIG’s credit ratings, which may be affected by any further decline in AIG’s financial condition." (Emphasis added).
(Other than that, great comment!)
"Does this mean that the Fed is effectively underwriting these swap agreements?"
Thats exactly what it means. Its not a secret that the French were crying and begging with US Authorities to keep AIG alive in order to avoid a collapse of the European Banking system.
"Could it be that the Fed, once again, might have to bail out the world?"
Yes, thats also what it means. For the moment they are trying to keep the dollar down in order for these trades to be profitable for european banks. Once these swaps reverse, the dollar will probably go to the moon and then some.
uh maybe this would explain why Franklin bonds were discovered crossing the border from Italy to Switzerland twice(who knows how many other times they crossed without being caught). Margin call is being met quietly so the house of cards doesn't come crashing down but a controlled demolition.
uh maybe this would explain why Franklin bonds were discovered crossing the border from Italy to Switzerland twice(who knows how many other times they crossed without being caught). Margin call is being met quietly so the house of cards doesn't come crashing down but a controlled demolition.
Even if this is not the methodology, your point about the calls being met quietly, is probably correct, backroom deals.
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