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Guest Post: Sham Transactions That Led To AIG's Downfall: The Ugly Truth Was Hiding In Plain Sight

Tyler Durden's picture


Submitted by David Fiderer, posted originally at Huffington Post

Sham Transactions That Led To AIG's Downfall: The Ugly Truth Was Hiding In Plain Sight

If you want to understand the deals that wiped out AIG, the best place to start is the website of the New York Fed.
In the financial statement of Maiden Lane III, published last April, we
see the gory details of the three largest CDO investments - Max 2008-1,
Max 2007-1, and TRIAXX 2006-2A - acquired from AIG's banks at par.
Those deals, which totaled $10.7 billion, offer a template for
evaluating the other sham transactions in the portfolio.

Initially, the business deal between AIG and the banks was that AIG
sold credit default swap protection. Banks buy credit default swaps for
two reasons: They want to slice and their dice credit risk, and/or they
want to hide something. Here's a simple, fairly innocuous,
illustration: Suppose you're a banker who tells his client, Procter
& Gamble, "We want to expand the relationship and do more business
with you." P&G then says, "Fine, lend us $100 million." Back at the
office, your senior credit management says, "The maximum risk exposure
we approve for P&G is $80 million." How do you keep in P&G's
good graces? You lend the company $100 million, and simultaneously
offload $20 million in risk exposure by purchasing a credit default
swap from another bank. P&G's understanding is that you've lent
them $100 million.

When Deutsche Bank bought a credit default swap from AIG in 2008,
its primary motivation was not to slice up the credit risk, but to hide
virtually all of it. Max 2008-1,
a CDO that Deutsche arranged and closed on June 25, 2008, was huge. The
total debt issue was $5.8 billion, of which 94%, or the entire $5.4
billion Class A-1 tranche, was covered by one credit default swap
issued by AIG Financial Products. The Class A-1 tranche was considered
"supersenior" because it was ahead of two other tranches, both
originally rated Aaa, which totaled $200 million. (The remaining debt
$200 million worth of debt was rated Aa, a and Baa at closing.)


Put another way, Deutsche Bank did not bring Max 2008-1 to "the
marketplace," where investors might consider buying the deal on its own
merits. By normal standards, the "market" for this CDO never really
existed. Nor did Deutsche sell the deal to AIG, which could have
assumed both the risks and rewards of owning a huge CDO. (In all
fairness, we do not know where the remaining 6%, or $400 million, of
less-senior tranches ended up. Deutsche could have kept them in
inventory to be stuffed into a yet another CDO.)

Almost all circumstances surrounding Max 2008-1 seem weird. We do
not know much about the $5.4 billion Class A-1 tranche, except that it
was never downgraded below its initial Aaa rating. Yet, according to
Deutsche Bank, AIG and Maiden Lane III's accountants, the underlying
value of Max 2008-1 collapsed within a matter of months. By the time
that the government agreed to acquire the CDO at par, the Class A-1
tranche purportedly had a negative "mark-to-market" of $2.5 billion. (As noted earlier,
accountants, both for AIG and the Fed, determined that that there was
no market benchmark for valuing any of the CDOs.) So did AIG turn over
$2.5 billion in cash collateral to Deutsche? No. It turned over $4
billion, as revealed in AIG's filing with the SEC, dated May 15, 2009.

Among the hundred plus CDO deals to which AIG extended credit
protection, the only ones which received collateral postings in excess
of the "negative market-to-market" were the two biggest: Max 2008-1 and
Max 2007-1, as revealed in the SEC filing of May 15, 2009.
Together, those two CDO tranches had a par value of $7.5 billion and a
"negative market-to-market" of $3.5 billion at the time Maiden Lane III
closed. But AIG had already turned over $5.6 billion in collateral to
Deutsche Bank, $2 billion more than what anyone thought to be

Everything about Max 2008-1 suggests that the parties were not
acting on an arms-length basis, that they had something to hide. A deal
rated Aaa doesn't decline in value by 40% within months after closing
and still retain its Aaa rating. (The more junior tranches received
moderate downgrades on March 19, 2009.) A cash-strapped insurance
conglomerate does not turn over $2 billion in excess cash collateral
for no reason. AIGFP had unsuccessfully struggled for the better part
of a year to establish an agreed-upon method for calculating the
amounts of cash collateral postings on these credit default swaps. It
seems more than a little odd that it would choose to expand this
problem with a credit derivative more than twice the size of its next
largest CDO exposure. And it seems especially odd that it would close
such a deal in June 2008, one month after Moody's and S&P had downgraded AIG, and issued warnings that further downgrades could be coming.

What becomes obvious, after reviewing Max 2008-1, Max 2007-1, and
TRIAXX 2006-2A, is that these deals never could have been done but for
AIG's willingness to assume the lion's share of the credit risk.

TRIAXX 2006-2A
was a $5 billion deal, of which AIGFP assumed $3.2 billion, or 64%, of
the credit risk. AIGFP provided credit protection in three different
tranches, all of which were rated AAA at closing. The sole underwriter
and arranger for the $5 billion CDO, which closed in December 2006, was
an outfit called ICP Securities LLC,
a private firm owned by its employees. In retrospect, it seems
remarkable that AIG would have assumed such a large exposure in a deal
structured by a relatively small private company. Nonetheless, ICP was
able to sell its deal into the marketplace, if that's the correct way
to characterize it. Of the $3.2 billion in credit protection sold by
AIG, $2.5 billion was purchased by Goldman Sachs, another $0.4 billion
was acquired by an affiliate of Dresdner bank, and $.03 billion was
acquired by a company of unknown origin, called CORAL Purchasing
(Ireland) Limited. All of this information was disclosed by AIG to the SEC on May 15, 2009.

The Aaa ratings at TRIAXX 2006-2A remained in effect at the time AIG
collapsed, and at the time the CDOs were sold at par to Maiden Lane
III. Nonetheless, Goldman had demanded, and received about $1 billion
in cash collateral postings prior to the date when the New York Fed
took the exposure off of AIG's books. About a month after Maiden Lane
III closed out its books for the year, on December 31, 2008, TRIAXX
2006-2A suffered a downgrade, to Caa.

Those eight-month-old public disclosures are very incomplete, but
they reveal a lot. They indicate that these CDO deals were not, by any
stretch of the imagination, conducted on an arms-length basis, and that
the these transactions took forms that were designed to conceal the
true economic interests of the parties. I'm always amazed by what
people, especially people not from the financial world, don't know. Big
banks are not like the Pentagon or the Coalition Provisional Authority.
Billion dollar amounts do not just slip through the cracks. There is no
way that the very top people at AIG and Deutsche Bank would not be
thoroughly briefed about every aspect of a $5.4 billion credit default
swap for a CDO called Max 2008-1.

The newly disclosed information,
which reveals the redacted parts of AIG's May 15, 2009 filing, serves
to confirm what we already realized. At AIGFP's CDO business, nothing
was what it seemed.


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Fri, 01/29/2010 - 18:09 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

Empanel the grand jury. Why are we waiting?

Fri, 01/29/2010 - 18:17 | Link to Comment bugs_
bugs_'s picture

Keep digging.  Thanks.

Fri, 01/29/2010 - 18:26 | Link to Comment B9K9
B9K9's picture

Ned, you're not asking the existential question, which is "Why aren't they prosecuting?" And the answer is ... national security - including blanket immunities and pending presidential pardons.

It's all right out there in the open. As if anyone needed additional proof, this week provided it in spades. The government in essence has said, come hell or high-water, it is absolutely committed to the FIRE economy. IOW, national security.

In their minds, little things like paying off some connected, private parties to the tune of a couple hundred $bil is small potatoes when considering what is at stake. But if you read between the lines, they are in effect admitting that other than FIRE, we don't have game.

Those $trillions in mal-investment? Sorry, they can't be re-purposed to effect net production. So we're gonna just have to make do with what we have. Labor arbitrage? Sorry, we cannot reduce wages or repeal regulations to be more competitive. So we're gonna just have to make do with what we have.

They are all in. There is no other way other than we MUST have credit-leveraged asset-inflation in which to resume driving a consumption based economy. If you don't believe we can pull it off (again), as if there were some math proofs or something laying around that dispel such a notion, then you might have some inkling as to what's in store for us.

(Curse you Goodwin.) This is our Stalingrad; Hitler (in the form of our collective representation) has made the decision to stand or die.



Fri, 01/29/2010 - 18:41 | Link to Comment Anonymous
Fri, 01/29/2010 - 19:56 | Link to Comment Ripped Chunk
Ripped Chunk's picture


Fri, 01/29/2010 - 22:00 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

Yes, and the phrase "systemic risk" can be used interchangeably, and in fact should be used interchangeably to confuse the sheeple as much as possible.

Fri, 01/29/2010 - 23:12 | Link to Comment Anonymous
Fri, 01/29/2010 - 18:48 | Link to Comment Anonymous
Fri, 01/29/2010 - 18:35 | Link to Comment Lowest Common D...
Lowest Common Denominator's picture

How I long for the days when ICP stood for Insane Clown Posse, and I was too busy immersed in pop culture and helping rich guys steal money to pay much attention to our econ's soft white underbelly.

(didja know that "Soft White Underbelly" was BOC's (Blue Oyster Cult's) name back in the day?)

Fri, 01/29/2010 - 21:58 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

great icon love it

Fri, 01/29/2010 - 18:44 | Link to Comment pros
pros's picture


The GS/AIG transactions were a sham, and fraud ab initio...

a fraudulent conveyance for no consideration

The AIG entity was not capitalized sufficiently.

The government can sue to unwind the transactions and place the losses back on GS' balance sheet...

and get fraud damages as well

But the government is acting for GS, not for US taxpayer..

but the taxpayer is not obligated to support actions of government officials undertaken for the interests of private parties and against the public interest...those are obligations of the private parties...the GS employees planted in the "government" and GS.



Sat, 01/30/2010 - 11:45 | Link to Comment boooyaaaah
boooyaaaah's picture

Good one, pros

When public and private become to entangled the common man is in a conundrum

We cant vote out the private crooks


There is no way to let the public crooks go bankrupt

Fri, 01/29/2010 - 18:46 | Link to Comment Waterfallsparkles
Waterfallsparkles's picture

That is my question how many Counter Parties received huge sums of money from Aig prior to the AIG bailout to cover the decrease in value of the CDO investments with the Downgrades by the Rating Agencys.  As you have previously stated the Contract called for Aig to pay to the Counter Party the decrease in value.

So, if these Banks got paid 100% on the Dollar, what about the Money they already received from AIG. 

Did the Banks get 150% or more on the dollar with the AIG Bailout?

I also wonder about the Rating Agencys.  They appear to be bought and paid for by thoes creating the CDO's.  Were they also bought and paid for to Downgrade the CDO's to give the Banks huge payouts?  I think so.

Then you have the FED paying them 100% on the Dollar after they received substancial sums from their Contractural Obligation to Pay the other party the loss of value in the CDO's.

I want to see the Books as to what was previously paid by AIG to the Banks and what they received from the FED.

You have to remember that Goldman was ready to tear up their CDS's because they were Hedged.  I happen to think that the Hedge was that they already recieved most of the money from AIG thru their Contractural Agreement of AIG paying them the loss in value.  Then I believe they got another 100% from the Government or us the People of the United States.

Something is very wrong with this. But, I am sure it will take time to get to the Bottom of it.

I still think this was a scam on the American People.

Fri, 01/29/2010 - 22:03 | Link to Comment Giovanni Zucchetti
Giovanni Zucchetti's picture

If you look exclusively at ML III assets, I believe Goldman Sachs received 5.9 billion in collateral on 14 billion notional, or a 42% discount from par.

After the bailout, Goldman Sachs received an additional 2.5 billion in collateral from AIG on the 14 billion notional.

Was this a scam on the American people?  By whom? Certainly AIG FG needed their heads examined.  But the Federal Reserve did about the only thing that could have been done.

Fri, 01/29/2010 - 23:14 | Link to Comment Anonymous
Sat, 01/30/2010 - 00:06 | Link to Comment Giovanni Zucchetti
Giovanni Zucchetti's picture

You are entitled to your opinion.  You're wrong.

Waterfallsparkles - they paid out 16 billion prior, 18 billion post, and I believe that is the ML IIII CDOs only.

Sat, 01/30/2010 - 10:39 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

Actually, you completely miss the point.  Are you paid to infiltrate this site and spread the "official Goldman line" on this stuff? I mean, it would make sense to have someone on staff do that.  Why not?

Thing is, it will be ineffective and runs counter to the central theme here, that of an utter distrust of the banking elites, disgust with their capture of the regulatory authorities, and disagreement with their agenda. Big picture stuff, at the heart of this.  I mean, as you say, you are entitled to your opinion, but it won't fly very far here so it may be an vain effort.

Just sayin'


Sat, 01/30/2010 - 14:07 | Link to Comment Kayman
Kayman's picture

Hey Gio


In a "normal" commercial insolvency, AIG's receiver/trustee would have told GS, Deutsche, etc. to GO TAKE A HIKE.

But, this scam was/is so wide-spread, with the patty-cake paper game between the "banks" (now there is a contradiction in terms), the (non-existent) rating agencies, and the so-called insurers, that only insiders, well-connected politically, got out alive.

By comparison, if AIGFP was the AIG commercial insurance division, it would be like me buying insurance on a building, that I had already set on fire, and having AIG pay me out in full. This DOES NOT HAPPEN IN THE REAL WORLD.

It would take 5 to 10 years of real growth in the U.S. economy to make up for the losses foisted onto the American Middle Class by these crooks.

Perhaps you are willing to do your part, by purchasing, at par, the (used only once) toilet paper held by the Federal Reserve.

Sun, 01/31/2010 - 21:12 | Link to Comment Giovanni Zucchetti
Giovanni Zucchetti's picture

Sorry, but the collateral posted stays with the recipient, so GS would have kept their 5.9 billion, and their position.


I believe what Mr. Fiderer is saying was in plain sight has nothing to do with the formerly confidential Schedule A. MAX 2008 - 1 A1 has been publicly listed for months on the Federal Reserve website in the ML III audited financial statements dated December 31, 2008.

Principal amount - 5.4 billion

Fair value - 2.4 billion

Ditch bank was the owner.  BFD. 

Fri, 01/29/2010 - 18:55 | Link to Comment MarketTruth
MarketTruth's picture

Are you there yet?


Are you ready to finally pull out all your funds from banks?


Sell off all stocks/trades?


Perhaps even go on a labor strike with your co-workers and picket your State government?






Or are you just sitting there like a good sheeple?

Fri, 01/29/2010 - 20:15 | Link to Comment dumpster
dumpster's picture

lets see .//labor strike against state government .


wave at the camera lol

Fri, 01/29/2010 - 19:06 | Link to Comment Anonymous
Sat, 01/30/2010 - 05:40 | Link to Comment Anonymous
Sun, 01/31/2010 - 09:50 | Link to Comment A Man without Q...
A Man without Qualities's picture

I think you, and we, are definitely getting closer to the truth, which is I suspect that a bunch of banks getting 100 cents on the Dollar for selling the assets and canceling the CDS is only a part of a much uglier scandal.

Fri, 01/29/2010 - 19:22 | Link to Comment GlassHammer
GlassHammer's picture

You know I am so glad we are funding fraud with bailouts. No wonder the government will do anything to keep this hidden because God forbid the public know what happened. 

Fri, 01/29/2010 - 19:58 | Link to Comment Ripped Chunk
Ripped Chunk's picture

Its becoming obvious isn't it?

Fri, 01/29/2010 - 20:00 | Link to Comment mikla
mikla's picture

This is *outstanding* work.

To re-emphasize the punchline:

Those eight-month-old public disclosures are very incomplete, but they reveal a lot. They indicate that these CDO deals were not, by any stretch of the imagination, conducted on an arms-length basis, and that the these transactions took forms that were designed to conceal the true economic interests of the parties. I'm always amazed by what people, especially people not from the financial world, don't know. Big banks are not like the Pentagon or the Coalition Provisional Authority. Billion dollar amounts do not just slip through the cracks. There is no way that the very top people at AIG and Deutsche Bank would not be thoroughly briefed about every aspect of a $5.4 billion credit default swap for a CDO called Max 2008-1.

Fri, 01/29/2010 - 20:20 | Link to Comment dumpster
dumpster's picture

just now many now see fraud ... eyes wide shut for many years .


i suspect the fraud of 9-11 has not sunk in ,, or the voting booths for years/

nice to see all the analysis  of the fraud .. its changed what . 

bet most voted for last election .  as a tribute to freedom  // civic duty to vote for those who in the end  force a gun into the mouth one way or another



Fri, 01/29/2010 - 20:34 | Link to Comment Anonymous
Fri, 01/29/2010 - 23:15 | Link to Comment Anonymous
Fri, 01/29/2010 - 20:36 | Link to Comment Anonymous
Fri, 01/29/2010 - 20:44 | Link to Comment Anonymous
Fri, 01/29/2010 - 23:17 | Link to Comment Anonymous
Sat, 01/30/2010 - 11:38 | Link to Comment boooyaaaah
boooyaaaah's picture

Thanks Ned

Unfortunately Barney and Obama just want a cut of the banksters ill gotten gains --- we have to let them fail

Back in '80 when Chrysler was bailed out  -- they had to get rid of the military tank division -- too important to be run by incompetants at Chrysler

This asset was picked up by Geneal Dynamics and is doing fine today

Let the bank assests be picked up by a new group of banksters

The present group have shown their intellectual fraud -- they must go ---- that is how capitalism rewards the bankrupt ---- the morally bankrupt

Fri, 01/29/2010 - 23:02 | Link to Comment Jefferson
Jefferson's picture

Not long before derivatives on Blankfein's demise start trading at Intrade:

On the fringes of one of the many showy events that host the real business of Davos, a senior London-based investment banker offered this wager: Lloyd Blankfein, CEO of Goldman Sachs, would be out within two years, he said, and he was prepared to back up his bet with millions of pounds.

Mr. Blankfein isn't the only target of antibanker anger. But he presides over the world's most successful investment bank. Goldman has emerged from the financial crisis stronger than ever. And Mr. Blankfein has been among the most outspoken public defenders of banks and he has paid his bankers well, though the level of bonuses was cut in the last round.

Asked about the wager over Mr. Blankfein, Goldman spokesman Lucas van Praag said: "It is preposterous that The Wall Street Journal would even consider publishing such effluent."

This guy is toast.

Meanwhile the globalists are undertaking a full frontal assault on the bankers in order to deliver the world into the arms of the IMF/BIS/FSB gang while masquerading as champions of the workers, protectors of the environment and saviors of the third world. Bill Clinton as UN Ambassador to Haiti. You gotta be kidding me.

One group enjoying the bankers' pain at the global capitalism fest in Davos is the trade-union movement.

"We were never sure if we were really welcome here. This time, we are speaking on panels, we have a seat at the table," said Philip Jennings, general secretary of the UNI Global Union. Now, bankers are "at the bottom of the totem pole. They've been rumbled."

Of course, what the union membership won't realize until it's too late is that like a turkey at a Thanksgiving meal they are there to be eaten.

Fri, 01/29/2010 - 23:03 | Link to Comment Anonymous
Fri, 01/29/2010 - 23:21 | Link to Comment Anonymous
Fri, 01/29/2010 - 23:40 | Link to Comment Anonymous
Sat, 01/30/2010 - 00:16 | Link to Comment Anonymous
Sat, 01/30/2010 - 00:20 | Link to Comment rapier
rapier's picture

When does the statute of limitations start running out on this stuff?   Well it's too late already.  If the entire CDO universe, and much else in the world where GS et al met the Treasury et al.,  would have been turned over to prosecuters and forensic investigators then the necessary political change could have started. Which is why the dogs were kept off.  Essentially every big swinging dick on Wall Street now owes their lives, their continue rich and comfortable ones, to Obama and I suppose Rahm and Summers.

The final irony of course is that they will see Obama hang for it. He's been played.

Sat, 01/30/2010 - 01:53 | Link to Comment Jefferson
Jefferson's picture

Congress failed to include either a criminal or civil statute of limitations when it passed the RICO Act. Congress' oversight was easily remedied with regard to the criminal statute of limitations. Title 18, section 3282 of the U.S. Code is the "catch-all" statute of limitation for federal crimes. It states that "no person shall be prosecuted . . . unless the indictment is found or the information is instituted within five years next after such offense shall have been committed." With regard to criminal prosecutions, it is generally held that a prosecution is timely so long as the defendant has committed one predicate act (that forms part of the pattern for which he is being prosecuted) within five years or less of the indictment. See United States v. Darden, 70 F.3d 1507 (8th Cir. 1995).

Sat, 01/30/2010 - 10:49 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

Plenty of time:

1.  Issa-Towns Commission report issues, recommends further investigation.

2.  Despite vicious opposition within the Beltway and its Wall Street masters, outside events and a growing public rage result in the appointment of a special prosecutor.

3.  A grand jury is empanelled to investigate, subpoenas are issued to the small fry and subordinates, who quickly understand the meaning of the "Prisoner's Dilemma," and begin singing the high notes. Detailed connection of all of the dots is accomplished by hard work of small group of New Untouchables.

4.  Indictments begin to issue, and trials begin. Glass - Steagall and new laws imosing outright prohibitons on bank size are passed by fearful congressmen. Investment banking reverts to a wholly private endeavor conducted by partnerships.

5.  End result is Geithner, Bernanke, Paulson, Kashkari, and numerous players who sold securities in violation of the antifraud rules, and otherwise engaged in outright bank fraud, are tried and sentenced.  The sweep of the fraud is far worse than even the tin hat crowd initially believed.

Sat, 01/30/2010 - 00:54 | Link to Comment Anonymous
Sat, 01/30/2010 - 06:34 | Link to Comment pros
pros's picture


Obama Hypocrisy Watch: Obama Rips Lobbyists, Then Has Treasury Give Them Private Briefings

If anyone had any doubts that Obama rhetoric does not comport with his conduct, consider:

This is what Obama said in the State of the Union address:

We face a deficit of trust – deep and corrosive doubts about how Washington works that have been growing for years. To close that credibility gap we must take action on both ends of Pennsylvania Avenue to end the outsized influence of lobbyists; to do our work openly; and to give our people the government they deserve.

The funny bit is Obama’s use of the phrase “credibility gap”. That was coined by the media to describe the whoopers that Lyndon Baines Johnson told with abandon while President. Does Obama recognize that he is channeling another legislator turned Chief Executive?

He is certainly exhibiting the same sort of behavior. After criticizing lobbyists in his State of the Union address, what does Team Obama (in this case, the Treasury Department) do but invite lobbyists in for a private chat…about the State of the Union address? And no doubt to tell them the tough talk on banks meant less than it appeared to.

The really appalling part is the lobbyists are so deeply embedded in the the operations of government, that the get upset when they are called bad names. Not only are they predictably blind to how corrupting their influence is, but they think their role is legimate, and have lost sight of the fact that the legislators and Executive Branch members that they influence need to have plausible deniabilty, hence need to issue the occasional stern statement about how awful lobbyists are before going back to business as usual. The fact that lobbyists are chafing at this necessary ritual says how disproportionate their role has become.

From The Hill:

A day after bashing lobbyists, President Barack Obama’s administration has invited K Street insiders to join private briefings on a range of topics addressed in Wednesday’s State of the Union.

The Treasury Department on Thursday morning invited selected individuals to “a series of conference calls with senior Obama administration officials to discuss key aspects of the State of the Union address.”…

The invitation stated, “The White House is encouraging you to participate in these calls and will have a question and answer session at the end of each call. As a reminder, these calls are not intended for press purposes.”…

A handful of lobbyists told The Hill on Thursday morning that they received the invitations and were planning to call in.

Some lobbyists say they are extremely frustrated with the White House for criticizing them and then seeking their feedback. Others note that Democrats on Capitol Hill constantly urge them to make political donations.

One lobbyist said, “Bash lobbyists, then reach out to us. Bash lobbyists [while] I have received four Democratic invitations for fundraisers.”…

Lobbyists say the Obama White House has held many off-the-record teleconferences over the past year…Another lobbyist said these types of teleconferences occur “all the time.”

And that is why many on K Street are exasperated with Obama’s use of lobbyists as a punching bag. Some have said they understood why he used strong rhetoric on the campaign trail but are irritated the White House solicits their opinions while Obama’s friends in Congress badger them for political donations.



Sat, 01/30/2010 - 07:32 | Link to Comment Hephasteus
Hephasteus's picture

Sociopaths are very sensitive. I bet it was super hard for them to take that harsh criticism without crying and feeling guilty.


Sat, 01/30/2010 - 09:33 | Link to Comment Anonymous
Sat, 01/30/2010 - 14:52 | Link to Comment Giovanni Zucchetti
Giovanni Zucchetti's picture

First, he's most likely talking about Goldman Sachs..

Don't you think way more than one of them had protected themselves against an AIG failure?  Goldman Sachs has discussed this aspect of the matter several times. They were giving advice to clients.  The Federal Reserve most likely had a very clear understanding of which counter parties were exposed to an AIG bankruptcy, and which were not.  The media talks about the ones that were likely unexposed, and never discusses the ones that were exposed.  Can't sell papers unless you squawk about Goldman Sachs.

Sun, 01/31/2010 - 04:49 | Link to Comment Anonymous
Sat, 01/30/2010 - 11:11 | Link to Comment boooyaaaah
boooyaaaah's picture

The only honorable way out of this mess is to repeal "to Big To Fail"

Let AIG & The Banksters fail

Do not let them siphon some of their ill gotten gains as "Fee" to Obama or a "tax" to the world's cental bankers --

This is only a kickback to maintain their to big to fail status

We need a new crop of bank managers and then after a few years (decades) we can let them fail, also.

just as Thomas Jefferson said the blood of tyrants needs to be shed --- the corporate blood of the banksters need to be shed

Revoke to big to fail


Sat, 01/30/2010 - 12:41 | Link to Comment boooyaaaah
boooyaaaah's picture

'Some of the world’s most prominent bankers have come out in favour of a global bank wind-down fund, a concession from the industry after weeks of fighting proposals for new taxes in the US and Europe."

And who will control this fund


"I think every G20 country would like to have an insurance scheme that would help cover the cost of any future bank failure"

Another, Global, AIG


"Bob Diamond, president of Barclays , also supported the idea of a global levy, which could see banks contribute tens or even hundreds of billions of dollars over a period of years."

As long as thing continue as they are --- no price is to high


"Support has been growing among regulators and politicians for an insurance levy as the best way to ensure that the burden of big bank collapses would not fall on taxpayers. But until now bankers have resisted the idea."

Regulators Politicians and now Banksters


"They say the impetus for considering a global levy came from President Barack Obama’s $90bn balance sheet levy, which will tax banks in the US to recover the cost of an earlier bail-out programme. "


A kick back to keep their jobs



"The House of Representatives approved a bill in December that creates a resolution fund for winding down big companies without the taxpayer expense of the AIG rescue or the damage to markets of the uncontrolled Lehman bankruptcy"

This lock box will be spent over and over again


"The Senate is considering whether to approve the House’s version, which levies an up-front fee on big banks, or to follow the Treasury in advocating that banks reimburse the taxpayer after any wind-down"


A fee on big banks --- banks that should no longer be alive  ----vampier banks ---- living off the blood sucked from the American Public ----

If they were to big to fail before --- after this fee starts rolling in they will live forver


"Regulators will be encouraged by the support of Mr Ackermann and Mr Diamond for a global levy. Jaime Caruana, head of the Bank for International Settlements, the umbrella body for global regulation, told the FT the most realistic way to institute a global levy would be to begin with Europe"


A global levy on ill gotten gains

This is just the beginning of levies and of ill gotten gains



Sat, 01/30/2010 - 11:32 | Link to Comment Anonymous
Sat, 01/30/2010 - 14:53 | Link to Comment rawsienna
rawsienna's picture

Very simply..  These CDO deals were done so DB could get rid of its own subprime risk and to get short.  That is how GS, DB survived the subprime mess. Their risk was transferred to AIG. Lets not also forget that Paulson was shorting the crap out of ABX at the time so that risk also needed to be laid off.  

Sat, 01/30/2010 - 15:11 | Link to Comment Giovanni Zucchetti
Giovanni Zucchetti's picture

AIG, on a company-wide basis, did not understand what AIGFP was doing.  How is that a sham?

"Hey, Cassano is printing more money.  Some idiot CDO owner just offered to pay us premiums against the possibility (not, haha, hehe, what fools) of a CDO defaulting.  Now, nobody holds back Cassano.  Okay?  Got it?  Nobody!"

"Well gee boss, don't you think letting the CDS buyer dictate the CDO valuation is a little crazy?"

"Shut the F up."

"Well gee boss, don't you think the collateral procedures are a little wacked?"

"Shut the F up.  Stay out of Cassano's way you maggot! He's got a printing press. You don't."

AIG was incompetent.  This does not make the people that did business with them corrupt.

Sat, 01/30/2010 - 23:57 | Link to Comment Kayman
Kayman's picture

Insurance companies selling insurance on AAA collateral. Yeah, AIG was incompetent and GS were mere innocents.  Where is my barf bag....

Repeating the BIG LIE does not move it closer to the truth.

Sun, 01/31/2010 - 21:00 | Link to Comment Giovanni Zucchetti
Giovanni Zucchetti's picture

It's been a long time since I've read a prospectus for a bond, but from memory the gist of the disclaimer is that a AAA rating does abrogate the absolute necessity for investors to do their due diligence.

Sun, 01/31/2010 - 21:00 | Link to Comment Giovanni Zucchetti
Giovanni Zucchetti's picture

It's been a long time since I've read a prospectus for a bond, but from memory the gist of the disclaimer is that a AAA rating does abrogate the absolute necessity for investors to do their due diligence.

Sun, 01/31/2010 - 08:31 | Link to Comment cognitive asini...
cognitive asininity ad hominem's picture

Yeah!  What Giovanni Zucchetti wrote!  Giovanni, you're my hero!

Sat, 01/30/2010 - 15:42 | Link to Comment Anonymous
Sat, 01/30/2010 - 18:24 | Link to Comment Gromit
Gromit's picture

Keeping it simple, hedgers buy CDS when it enhances the value of something else they own by a greater amount than the cost of the premiums. Usually they sell an asset together with the CDS (as in securitization) so they don't care whether the counterparty is solvent as long as the buyer will buy.

This helps to explain the counter intuitive transactions in sovereign CDS. Why does anyone buy sovereign CDS when the country can avoid default simply by printing? Because ownership of this CDS enhances the value of something else the buyer owns.


Mon, 02/01/2010 - 09:40 | Link to Comment Waterfallsparkles
Waterfallsparkles's picture

I have always wondered if the in effect Counterfeited Mortgages.  So, in effect take a $100,000. Mortgage and break it up into 10 $10,000. pieces put thoes pieces in 10 CDO's.  But, if instead of breaking it up into 10 $10,000. pieces they broke it up into 20 $10,000. pieces or even more you are setting up for failure. 

After all who would know as no one held all of the pieces.

With many of the Forclosures no one knows who holds the Original Note, it cannot be found.  Was this done intentionally to cover up the Counterfeiting?

It would make sense as to why they failed so badly.  If one or many Mortgages created double the default it would be a disaster.  As it turned out to be.   It also would make sense why Goldman insured against them.

Tue, 10/26/2010 - 22:40 | Link to Comment guccichanel
guccichanel's picture

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