Guest Post: AIG – Still More Questions And Fallacies Than Answers

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Tue, 05/24/2011 - 16:24 | 1306523 strannick
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'AIG lost money ...where they underestimated the risk. Banks themselves were sloppy'.

So I guess they all meant well? Due to unforseeable circumstances beyond anyone's control, things didnt work out?

If I borrowed a quagsquillion dollars, and bet that the Canucks would beat Boston in the Stanley Cup final 10-0, and lost, would that be

1. 'underestimating risk' or

2. 'betting like a drunken lunatic sailor on leave with my Captain's stolen credit card'?

Whats next.

'Rogue Traders'?

Tue, 05/24/2011 - 23:12 | 1307776 silberblick
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Click below to see a visual graph of Bankster's dirty needs arranged according to Abraham Maslow's hierarchy of needs: http://thesilvergoldhedge.blogspot.com/2011/05/banksters-dirty-hierarchy...

Tue, 05/24/2011 - 16:16 | 1306528 jmac2013
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AIG, the Washington Generals of the rigged market casino.

Tue, 05/24/2011 - 16:17 | 1306530 jswede
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"One issue about the AIG bailout that I have not been able to find a satisfactory answer for is what entity was really responsible for potential payments.  The employees who lost the money all worked for AIG FP.  Was AIG FP the entity that the banks faced, or was AIG actually the counterparty on the trades?"

AIG the parent had the AA rating and the capital.  Don't see how FP operates to this scale without it.  Ultimately the buck stopped there.

Tue, 05/24/2011 - 16:17 | 1306532 mayhem_korner
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as the government is about to unload some of its AIG shares on the market

...much more apropo than "sell"

Tue, 05/24/2011 - 16:19 | 1306535 Sudden Debt
Sudden Debt's picture

I you would have said to anybody 3 years ago that AIG would still be here, they would have smacked you.

 

 

Tue, 05/24/2011 - 16:20 | 1306542 benevolous
benevolous's picture

AIG guaranteed AIGFP from the start. It was the basis of AIGFP's business model.

 

By the way, this is not a state secret. The fact that AIG guaranteed AIGFP has beeen publicly disclosed by AIG in its SEC filings for years.

Tue, 05/24/2011 - 16:55 | 1306650 AbandonShip
AbandonShip's picture

old-school SAT analogy helps here:

Question

AIG-FP : AIG

FNMA :  ?

Answers:

a. Federal Reserve

b. US Government

c. US Taxpayers

d. All of the above

 

Basically AIG-FP would not have been able to sell that credit insurance without backup from AIG the parent.  You think Goldman was doing business with AIG-FP? No! They knew Hank "Ace" Greenberg's entire balance sheet would one day backup those useless CDS contracts. Just like all along everyone knew that when push-came-to-shove, FNMA/FHLMC debt would definitely be supported by the Federal Reserve.  You think the Fed is gonna tell China/Japan to f0ck off with their agency paper?  c'mon, that's a financial nuke we can't afford to use.

Off-balance sheet is where the action is my friends.

Tue, 05/24/2011 - 17:03 | 1306700 tired1
tired1's picture

I would like to know what the Fed is going to do with its US debt. China and Japan can be told to F O. Is the Fed going to take possesion of the Washington Bridge and NJ TurnPike so that it can collect tolls?

Tue, 05/24/2011 - 17:05 | 1306705 mayhem_korner
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More likely take over your house and collect rent.

Tue, 05/24/2011 - 16:22 | 1306551 mayhem_korner
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I think Lewis's The Big Short gets into the "second derivatives" (writing options on baskets of CDOs) that blew up on AIG.

http://blogs.reuters.com/felix-salmon/2010/03/15/the-big-short/

 

Tue, 05/24/2011 - 16:23 | 1306554 Problem Is
Problem Is's picture

Let's Ask "Honest" Joe Cassano
He straightened "Empty Suit" Holder and the DOJ out on all their questions...

Tue, 05/24/2011 - 17:19 | 1306747 Dapper Dan
Dapper Dan's picture

Joe Cassano

"Never trust a man who's last name ends in a vowel"

Dapper's pappy circa. 1970

Old Joe learned from the best...... Michael Milken.

And he work for the best.....Drexel Burnham Lambert.

 

 

 

Tue, 05/24/2011 - 21:46 | 1307558 Problem Is
Problem Is's picture

Sweet... criminal pedigree...

So Cassano trained as a "philanthropist" under the felon Milken??

Tue, 05/24/2011 - 16:36 | 1306621 JohnG
JohnG's picture

"Bailout out Wall Street for its own failure to manage counterparty exposure is an incredibly bad precedent but I believe Wall Street has learned its lesson."

 

Ummmmm, no.  Wall Street has learned that Wall Street is TBTF, and will be bailed out again WHEN it becomes "neccesary."

Leeches are as leeches do.

Tue, 05/24/2011 - 16:39 | 1306622 williambanzai7
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Tue, 05/24/2011 - 17:26 | 1306758 compound interest
compound interest's picture

a

Tue, 05/24/2011 - 17:24 | 1306759 compound interest
compound interest's picture

x

Tue, 05/24/2011 - 17:25 | 1306768 compound interest
compound interest's picture

the AIG bailout is the "original sin" of the crisis response. if the gov't hadn't bailed out AIG, the financial system would have collapsed then, and we would have a new financial system now (maybe better), we'd have a real recovery. instead, trillions of taxpayers' dollars had been spent, the whole US went totally underwater trying to solve the crisis by "stimulus", and the only result is that the old financial system is still breathing.

 

politicians say the main cause of the crisis was the lack of regulation. but the real problem is the existence of the "bailout put", the fact that the TBTF act like they know that they will be bailed out when it is necessary. if markets were really "free", and we didn't even know the word 'bailout', then market participants would act like they have to take responsibility for their actions and investment decisions. what i've learned from the financial crisis is not that "markets can't repair themselves, and don't tend to balance themselves", but quite the opposite! markets always tend to balance themselves, but the waves of a market rebalancing, a real systemic crash in the corrupted system would be so hurtful in the short term, that politicians don't dare to let the markets clarifiy themselves, because they know it  would hurt them, too, meaning phisically. so they do everything to "kick the can down the road", prolong the status quo for one more year, and one more, and one more, until the inevitable shit finally hits the fan, but it will be worse than it would have been if it had happened earlier and faster.

 

markets rebalance their own distorted ways in the long run, but market regulation and government control can't repair it, it just adds another distorting skew, another risk factor to the markets. the gov't control can virtually solve some problems in the markets, but if you try to lower the volatility by banning some derivatives, then the volatility, the market frustrations that have real fundamental reasons, will appear elsewhere in the system, so you didn't solve anything.

 

if anything goes wrong in the economy, the final bill will be payed by the taxpayers / consumers / retail investors / borrowers anyway. that's just the nature of things. but when things go wrong, paradigm shift occurs, it can be done fast, by drastical, large steps, or we can focus our every energy to try to prolong the old system. the second way is the harder and the more hurtful, more expensive one, still our leaders do everything to delay the inevitable changes.

Tue, 05/24/2011 - 21:28 | 1307491 oogs66
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Simply awesome and maybe this is why Tyler allows some mediocre posts - not for what they offer, but for the comments they illicit

Tue, 05/24/2011 - 17:23 | 1306769 Seasmoke
Seasmoke's picture

i will never understand why they didnt disect the AIG problem away from the good AIG and allowed the cancer to spread everywhere......unless someone has a better reason, it has to be because of Goldman Sachs

Tue, 05/24/2011 - 17:53 | 1306856 glenlloyd
glenlloyd's picture

I gave up at '...Wall Street has learned its lesson."

Tue, 05/24/2011 - 18:11 | 1306915 MacGruber
MacGruber's picture

But they DID learn it. The lesson was moral hazard is dead (if it ever existed), go ahead and write whatever uncollateralized bullshit you want and trade it amongst yourselves for no real productive benefit - buy yachts, hookers and blow with the commissions. If it fails, fuck it, just give it to Timmy and Ben, they'll stuff it down the public's throat.

Austerity for those outside the game (gotta fill those uncollateralized obligations somehow!), more hookers and blow for those inside. This won't change without revolution.

Tue, 05/24/2011 - 18:02 | 1306884 Nicholaz
Nicholaz's picture

I liked this book telling the AIG tale.

Fatal Risk: A Cautionary Tale of AIG's Corporate Suicide<

http://www.amazon.com/Fatal-Risk-Cautionary-Corporate-Suicide/dp/0470889802

Tue, 05/24/2011 - 18:07 | 1306912 topcallingtroll
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Selling insurance has to be regulated and scrutinized by a third party somewhere otherwise insurance schemes tend to collapse.

Wed, 05/25/2011 - 00:25 | 1307931 Dan The Man
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what if it tanks to like $2 a share?

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