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US Taxpayers About To Be Saddled With Another European Bailout Courtesy Of AIG
Just when one thought every imaginable taxpayer bailout scheme had been seen, experienced and in many cases, forgotten, here comes AIG once again. The specifics come from Deutsche Bank's Joshua Shanker initiation of coverage report on AIG (naturally with a Buy rating, $34.00 target price), where within the fine print he notes: "the company believes there may be bargains available from buying RMBS securities from European banks seeking better positioning under Basel III requirements. " Prudently, he adds: "We note that increased yield, in this regard, also carries with it increased risk." Translated this means that AIG is about to do for European banks what the ECB so far has been unwilling and/or unable: namely to transfer the risk associated with European banks' massive ongoing exposure to the continuously collapsing US housing market back to the US taxpayer, in the form of AIG, which was bailed out once, and which will certainly be bailed out again, when the time comes.
As a reminder, AIG was rejected by the New York Fed in its attempt to repurchase the very same loans that were part of the package that sent the company into bankruptcy, only to be rescued in the last minute by Hank Paulson, who flipped on his decision to kill Lehman (thus making Goldman the Wall Street fixed income OTC monopolist) by providing hundreds of billions in order to unwind Joe Cassano's massive wrong way bet.
As for how much RMBS will AIG soon transfer from European taxpayer "backstopping" and back to US? Roughly $21 billion worth.
From the relevant section in the DB report:
Optimization of investment portfolio
This plan is somewhat vague. We believe, in its truest sense, the company should always be optimizing its investment portfolio for best returns and, as with strategic execution, it is a status quo issue. However, there is also an aspect of redeploying capital for higher yields that may not be strictly "optimization." When the company outlined its initial ROE improvement plans, it intended to repurchase its former MBS portfolio—known as Maiden Lane II—from the government. AIG pledged the majority of this pool to the government as collateral during the credit crisis rescue. Postrestructuring, AIG intended to repurchase these securities now yielding 8-9%. Given AIG's former ownership of these securities, management felt that the company understood the underlying risks well. The company indicated that successful repurchase of Maiden Lane II was not included in its ROE expansion plans. Ironically, AIG was not successful in its repurchase plans as a competitive bidding process sold these securities to other buyers. Now, the company intends to use the allocated capital to seek higher yields elsewhere. It seems this had to be contemplated in an asset reallocation plan to some extent. Regardless, the company believes there may be bargains available from buying RMBS securities from European banks seeking better positioning under Basel III requirements. We note that increased yield, in this regard, also carries with it increased risk.
Note the part: "Given AIG's former ownership of these securities, management felt that the company understood the underlying risks well." Oh yes, the company which went bankrupt by holding on to these securities, certainly understood the "underlying risks." What it however understands all too well, is that no matter what toxic biohazard it onboards now, and no matter how undercapitalized it could become, Uncle Sam will always be there to bail it out for ever and ever. Thank you Bernanke Put.
h/t Tim
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I was wondering where QE 3 would go...
Get out the torches, pitchforks, draft horses, and sulphur!
USA! USA! USA! O, is this the wrong time?
Wow AIG is just one super sized sack of shit, it will ultimately be buried. I wonder how that will go down? It almost looks to me like liablities for the ultimate collapse are going to be herded into a few scapgoats that will be flushed. B of A and AIG stand out to me.
Still this effort is politically transparent, they cannot expect for round two of this trick to work for long, so the death of AIG and similar entities must be near?
Just what we need, AIG to buy RMBS from Europe?
Its really not that bad. After the May IPO the UST only owns 77% of AIG. So potentially the taxpayer would be on the hook for 77% of the bogus RMBS which the euros would reluctantly part with. And the UST would only influence AIG management decisions 77% of the time.
http://www.usatoday.com/money/perfi/columnist/krantz/2011-06-02-buying-o...
Oh great, one solved by the printing press the other by austerity.........
Does Cassano get a commision on this?
21 billion? just put it on my tab.
All failures are transitory comrades!
transitory memory.........
What the heck, if it's failure you want then go to the experts!!!!!!!!
Are you sure they haven't also sold CDS's on Greece? I'm wondering who's left holding the bag.
Greece?
If AIG already has 21 billion in notional exposure to the specific distressed assets they are looking to purchase, they could theoretically profit in either an up or down market- but that implies a level of expertise and sophistication that AIG certainly hasn't demonstrated yet.
BUt didn't all their "best" people leave?
Gvt bailout - expertise - massive fail - taxpayer rape
Which of the above is not like the others?
The government sold off whole AIG divisions full of smart people at fire-sale prices, what was left was at most the "best of the worst" I don't think there's a chance in hell that AIG can pull it off profitably, but there is a methodology that could work, or at least reduce and offset future significant losses which are bound to rematerialize as the current hopium high wears off.
I cannot help feeling impressed with the spiderweb of "shitty deals" that is ever more intricate in world finances. A house of cards is a paragon of stability by comparison. Question: is collapsing Greece a catalyst for the world EVENT or will we see one country down every second month? It's been a managed financial chain reaction so far. Can it still be managed when Greece goes down?
Greece isn't a real country. It hasn't the GDP of Rhode Island. If Rhode Island were to default no one but the hens would know it.
To use it as a base to extrapolate what will happen to the entire continent, and the globe, is likely, a 'bridge too far'.
Yeah. Thus spake the Archduke.
Anony re: Greece vs. Rhodel Island. Agreed except Greece total outstanding debt is more than RI's... about $236billion more. With 4million wage earners backing up this Greek borrowing. Nice.
I was playing around with some numbers the other day and Maryland seems like a better comparison to Greece. The difference in my model is that it takes into account the national debt share that the citizens of a US State are proportionately liable for. The data I didn't have convenient was Greece's proportional obligation to the ECB for the other PIIGS liability, but since they only account for 2% of GDP and ECB doesn't issue supranational debt (yet) it's impact would be negligible, unlike throwing in FED & GSE obligations in the US.
Maryland GDP $300B (2.07% of US total)
Population 5.8M
state & local direct debt $40B or 13% GDP
Share of $14T US National Debt $378B or 126% GDP
Combined Debt $418B or 139% of GDP
Combined Debt per Capita $72,069
Greece GDP $305.4B (1.90% of EU total)
Population 11.2M
State direct debt $436B or 142.8% GDP
Share of $0 EU supra national Debt $0 or 0% GDP
Combined Debt $436B or 142.8% GDP
Combined Debt per Capita $38,929
If I go buy a few nice Apple products and max out my credit card will the US govt bail me out? I am consuming.
You sire are a partiot and should be rewarded with the highest honour.
Everyone keep the Ponzi going, it's not what your country can do for you - but what you can buy from your country.
Fascinating. Are they trying to call the bottom and catch a falling knife? Or, are they trying to ensure their TBTF status? Next time, it would be healthy for the system to let the stupid players fail.
BTW, the IYR looks like it may FINALLY be breaking down. It's leading the market down right now.
You can burden the USA ALL YOU WANT..... WITH AS MUCH DEBT AS YOU WANT
IT IS NEVER GOING TO BE REPAID...... remember the band on the titanic played right
up until the instruments filled up with water.........
I thought Jamie Dimon said all the bad actors were gone now?
He's still there isn't he?
What is RMBS?
http://en.wikipedia.org/wiki/Residential_mortgage-backed_security
residential mortgage backed securities
the crap loans packaged into toxic waste
Thanks for the info. I'm still learning.
Maybe all the RMBS sludge can be poured into barrels and burried in Love Canal.
Storage is not a problem. There is plenty of space where the gold used to be.
How is it that AIG has capital to deploy but they're still owned by the taxpayers?
AIG should have been allowed to go under, then we wouldn't have these kinds of stupid things going on that only zombies do because they don't understand that their very existence is courtesy of a population that never wanted it to begin with.
I second that sentiment. Why can't AIG and all of the TBTF giants just be allowed to die their natural deaths? Sure it would be painful for a while, but wouldn't we all be better off in the long run?
If you had the power to run the world, would you give it up? Stability is more valuable now a days than freedom. One of my favorite qoutes from ben franklin that fits so beautifully into todays culture of fear,
Sad but true. Society places little value on freedom any longer.
I wonder how long before the power brokers demand our guns and PMs.
That is a classic Ben Franklin quote. A lesser known, but just as enjoyable line from Poor Richard is:
“Damn, Voltaire, you sure know how to throw a crazy, mother f’ing orgy. I need to come back to France more often.”
This is the new era. We don't need no steenking capital.
This isn't really a bet on a real estate recovery: this is a criminally engineered back door bailout to banks that are still holding this worthless paper on their books. Perhaps the plan is this: use AIG as "THe Bad Bank II", soaking up global toxic paper using US taxpayer funds and thereby making the criminal banks smell less like manure and a bit more like buttercups.
That would be a bankster dream. Then they could let AIG fail, get bailed out again and become the US taxpayer's headache. Wash, rinse, repeat
Well that should make George Soros feel just peachy.
He has been behind, or in front of "Socializing" the risks of gamblers like himself take for a half a century.
All profits, of course, only accrue to the gamblers.
Sounds like the deal that Merkel and the "empty suit" worked out...
Wasn't AIG bailed out more than once? I seem to recall that just about every other week they needed another 10-250 Billion.
I learned more from watching this video series about the way things REALLY work....than I did in years of watching 'news', going to college, serving in the military, etc.
http://www.youtube.com/watch?v=l37RhdFGVsM
Within the first 3 lessons you'll get full understanding of why entities like AIG will never be allowed to fail (above link should be to Lesson 1). Don't worry, it's presented in a manner that even a regular dude like me can understand.
Enjoy your red pill.
P.S. I believe most ZH'ers are already familiar with the material, but it's worthy of passing on to the people in your life who may 'not get it', or those who prefer the ostrich method of crisis management.
.
You know that Wile E. Coyote moment where he floats in the air for a bit after he has gone over the edge of the cliff? It is not until he looks down and actually sees his predicament that he then falls. They have deployed the most massive global check kiting scam known in the history of human kind, in an effort to prevent us from looking down and actually seeing our predicament. We are in the slow motion moment that stretches.
wow, would you like to dance to prolong this limbo?
I was wondering when AIG was going to rear is ugly head. I'm curious about the insurance industry and ALL the un-natural disasasters that have hit us what happend to all the swell news of mmmm them tar naados and fires and flooding.
wait Lindsy Lohan get 35 days with a ankle bracelet at home and a congressman shows his ass well ok the other part.
All is well.
Holy shit i wake op every day in Bazaro would.
I picked the wrong day to stop shooting heroin
we don't need water let the mother fucker burn
I'm not Sad...I'm PISSED OFF!!!!!!
Oligarchs Inc. I scratch your back and you scratch mine...ECB/FED and proxies helping each other out to clean their books as their liabilities continue to climb. Anyways, its the tax payer who pays in the general melt down of western assets both sides of the pond. The great alliance of MIC fed Nato now the great alliance of financial Titanic Ponzi...Charybdis and Scylla..you takes your pick...sheeple!
Good bank, bad bank, and so it is.
this should be no surprise, because the people running AIG are all now from the NY fed.
excuse my naivete here...but isn't AIG coming out with another stock offering to fools and idiots. Why should they not then use these assets to do whatever the heck they want without exposing the US taxpayer to additional bail outs. when is this crap going to end....can we say.."self-responsibility"...
So long as Goldman, JOM , the TBTF Banks have to encash the derivatives bets, AIG will remain alive.
The American tax payer who is already in the ICU will end up becoming comatose
I'm not paying for it.
Right now, prison sounds restful.
Fuck you finance dudes.
Ahh, the proud legacy of that stinking crap log Maurice Greenberg.
Another foul Wall Street Islamofascist.
AIG is a russian mafia thing, courtesy of the boys in brighton beach and their go to guy maurice.......
out-Goldman Sachsing, Goldman Sachs.....
namely to transfer the risk associated with European banks' massive ongoing exposure to the continuously collapsing US housing market back to the US taxpayer, in the form of AIG, which was bailed out once, and which will certainly be bailed out again, when the time comes.
Not to be too pedantic here, Tyler, but is it the US taxpayer who will be paying for this? The Fed are going to monetise the debt, or write it off, which is inflationary, so isn't it all holders of USD and Securities that will be 'paying' for this?
Pitchfork time! Oh wait, Keeping Up with the Kardashians is about to come on.
There's no doubt in my mind that the true interests of America were not served when AIG was bailed out.
Can you please pass us the KY Lube?...yes, the entire tube.
Thank you.
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I love messing with you guys! Kisses.