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US Taxpayers About To Be Saddled With Another European Bailout Courtesy Of AIG

Tyler Durden's picture


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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Thu, 06/09/2011 - 11:09 | 1354456 Robslob
Robslob's picture

I was wondering where QE 3 would go...

Thu, 06/09/2011 - 11:18 | 1354499 SparkyvonBellagio
SparkyvonBellagio's picture

Get out the torches, pitchforks, draft horses, and sulphur!

Thu, 06/09/2011 - 11:26 | 1354527 camaro68ss
camaro68ss's picture

USA! USA! USA! O, is this the wrong time?

Thu, 06/09/2011 - 12:23 | 1354735 The Fonz
The Fonz's picture

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?

Thu, 06/09/2011 - 11:14 | 1354471 oogs66
oogs66's picture

Just what we need, AIG to buy RMBS from Europe? 

Thu, 06/09/2011 - 13:37 | 1354984 Flounder
Flounder's picture

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.


Thu, 06/09/2011 - 14:30 | 1355176 Threeggg
Threeggg's picture

Oh great, one solved by the printing press the other by austerity.........

Thu, 06/09/2011 - 17:39 | 1355895 Hi Ho Silver
Hi Ho Silver's picture

Does Cassano get a commision on this?

Thu, 06/09/2011 - 11:16 | 1354482 augie
augie's picture

21 billion? just put it on my tab.

Thu, 06/09/2011 - 11:17 | 1354495 karzai_luver
karzai_luver's picture

All failures are transitory comrades!


transitory memory.........

What the heck, if it's failure you want then go to the experts!!!!!!!!




Thu, 06/09/2011 - 11:20 | 1354493 zenon
zenon's picture

Are you sure they haven't also sold CDS's on Greece? I'm wondering who's left holding the bag.

Thu, 06/09/2011 - 11:44 | 1354585 Harlequin001
Harlequin001's picture


Thu, 06/09/2011 - 11:27 | 1354518 Urban Redneck
Urban Redneck's picture

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.

Thu, 06/09/2011 - 11:41 | 1354573 karzai_luver
karzai_luver's picture

BUt didn't all their "best" people leave?


Gvt bailout - expertise - massive fail - taxpayer rape


Which of the above is not like the others?


Thu, 06/09/2011 - 12:09 | 1354694 Urban Redneck
Urban Redneck's picture

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

Thu, 06/09/2011 - 11:25 | 1354523 monkeys.pick.bottoms
monkeys.pick.bottoms's picture

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?

Thu, 06/09/2011 - 11:57 | 1354648 anony
anony's picture

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'.

Thu, 06/09/2011 - 12:23 | 1354734 RockyRacoon
RockyRacoon's picture

Yeah.   Thus spake the Archduke.

Thu, 06/09/2011 - 12:27 | 1354763 ConfusedIdiot
ConfusedIdiot's picture

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.

Thu, 06/09/2011 - 13:19 | 1354933 Urban Redneck
Urban Redneck's picture

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

Thu, 06/09/2011 - 11:25 | 1354524 JailBank
JailBank's picture

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.

Thu, 06/09/2011 - 11:49 | 1354607 writingsonthewall
writingsonthewall's picture

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.

Thu, 06/09/2011 - 11:29 | 1354528 Beatscape
Beatscape's picture

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.

Thu, 06/09/2011 - 11:26 | 1354529 surfwon
surfwon's picture


IT IS NEVER GOING TO BE REPAID...... remember the band on the titanic played right

up until the instruments filled up with water.........

Thu, 06/09/2011 - 11:28 | 1354537 Bay of Pigs
Bay of Pigs's picture

I thought Jamie Dimon said all the bad actors were gone now?


Thu, 06/09/2011 - 13:17 | 1354913 Head_Shots_Work
Head_Shots_Work's picture

He's still there isn't he?

Thu, 06/09/2011 - 11:32 | 1354538 wombats
wombats's picture

What is RMBS?

Thu, 06/09/2011 - 11:35 | 1354556 JohnG
JohnG's picture

residential mortgage backed securities


the crap loans packaged into toxic waste

Thu, 06/09/2011 - 11:41 | 1354571 wombats
wombats's picture

Thanks for the info.  I'm still learning.


Maybe all the RMBS sludge can be poured into barrels and burried in Love Canal.

Thu, 06/09/2011 - 12:24 | 1354742 RockyRacoon
RockyRacoon's picture

Storage is not a problem.  There is plenty of space where the gold used to be.

Thu, 06/09/2011 - 11:41 | 1354569 glenlloyd
glenlloyd's picture

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.

Thu, 06/09/2011 - 11:40 | 1354582 wombats
wombats's picture

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?

Thu, 06/09/2011 - 12:02 | 1354654 augie
augie's picture

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,

"Those who would give up essential liberty to purchase a little temporary saftey, deserve neither liberty nor saftey"

Thu, 06/09/2011 - 12:11 | 1354705 wombats
wombats's picture

Sad but true.  Society places little value on freedom any longer.

I wonder how long before the power brokers demand our guns and PMs.

Thu, 06/09/2011 - 12:20 | 1354724 Vic Vinegar
Vic Vinegar's picture

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.”

Thu, 06/09/2011 - 12:25 | 1354745 RockyRacoon
RockyRacoon's picture

How is it that AIG has capital to deploy but they're still owned by the taxpayers?

This is the new era.  We don't need no steenking capital.

Thu, 06/09/2011 - 11:41 | 1354575 Caviar Emptor
Caviar Emptor's picture

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

Thu, 06/09/2011 - 11:48 | 1354615 anony
anony's picture

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.



Thu, 06/09/2011 - 11:54 | 1354632 carbonmutant
carbonmutant's picture

Sounds like the deal that Merkel and the "empty suit" worked out...

Thu, 06/09/2011 - 11:56 | 1354643 fuu
fuu's picture

Wasn't AIG bailed out more than once? I seem to recall that just about every other week they needed another 10-250 Billion.

Thu, 06/09/2011 - 12:00 | 1354649 Ace Ventura
Ace Ventura's picture

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.

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.

Thu, 06/09/2011 - 19:24 | 1354681 fuu
fuu's picture


Thu, 06/09/2011 - 12:07 | 1354674 MsCreant
MsCreant's picture

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.

Thu, 06/09/2011 - 12:09 | 1354697 falak pema
falak pema's picture

wow, would you like to dance to prolong this limbo?

Thu, 06/09/2011 - 12:09 | 1354679 HileTroy
HileTroy's picture

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




Thu, 06/09/2011 - 12:06 | 1354683 unclebill
unclebill's picture

I'm not Sad...I'm PISSED OFF!!!!!!

Thu, 06/09/2011 - 12:12 | 1354689 falak pema
falak pema's picture

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 takes your pick...sheeple!

Thu, 06/09/2011 - 12:26 | 1354759 Cone of Uncertainty
Cone of Uncertainty's picture

Good bank, bad bank, and so it is.


Thu, 06/09/2011 - 12:44 | 1354799 dcb
dcb's picture

this should be no surprise, because the people running AIG are all now from the NY fed.

Thu, 06/09/2011 - 12:53 | 1354845 Diamond Jim
Diamond Jim's picture

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"...

Thu, 06/09/2011 - 12:58 | 1354857 nathan1234
nathan1234's picture

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

Thu, 06/09/2011 - 13:17 | 1354915 Rodent Freikorps
Rodent Freikorps's picture

I'm not paying for it.

Right now, prison sounds restful.

Fuck you finance dudes.

Thu, 06/09/2011 - 14:00 | 1355063 ArrestBobRubin
ArrestBobRubin's picture

Ahh, the proud legacy of that stinking crap log Maurice Greenberg.

Another foul Wall Street Islamofascist.

Thu, 06/09/2011 - 14:18 | 1355150 High Plains Drifter
High Plains Drifter's picture

AIG is a russian mafia thing, courtesy of the boys in brighton beach and their go to guy maurice.......

Thu, 06/09/2011 - 14:43 | 1355233 contrabandista13
contrabandista13's picture

Thu, 06/09/2011 - 14:44 | 1355242 contrabandista13
contrabandista13's picture

 out-Goldman Sachsing, Goldman Sachs.....

Thu, 06/09/2011 - 21:40 | 1355244 BigJim
BigJim's picture

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?

Thu, 06/09/2011 - 16:26 | 1355557 AldoHux_IV
AldoHux_IV's picture

Pitchfork time! Oh wait, Keeping Up with the Kardashians is about to come on.

Thu, 06/09/2011 - 17:41 | 1355890 Ned Zeppelin
Ned Zeppelin's picture

There's no doubt in my mind that the true interests of America were not served when AIG was bailed out.

Thu, 06/09/2011 - 19:29 | 1356236 PulauHantu29
PulauHantu29's picture

Can you please pass us the KY Lube?...yes, the entire tube.

Thank you.

Wed, 06/15/2011 - 02:42 | 1370132 Yen Cross
Yen Cross's picture


Wed, 06/15/2011 - 02:39 | 1370133 Yen Cross
Yen Cross's picture

 I love messing with you guys! Kisses.

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