Guest Post: The Dirty Little Secret About AIG's AAA Pyramid Scheme

Guest Post by David Fiderer

The insufficiently unexamined issue regarding the timing of AIG’s downfall is the AAA pyramid scheme embedded inside of AIGFP’s CDO portfolio.  The ratings agencies defined reality in the alternate universe of CDOs, where bona fide due diligence was impossible and opportunities for abusive self dealing were rife.

The newly released CUSIPS, which more of less confirm the information yielded from the prior memo obtained by CBS. And again, the noteworthy point is that, on September 15, 2008, almost none of the subject CDO tranches had been seriously downgraded.  They had all been rated Aaa at closing. Their ratings collapsed a few months later.  There’s abundant circumstantial evidence that the ratings agencies delayed and dragged out the downgrade announcements for these black box CDOs. But they had must have done the math, and realized that AIG’s reliance on their ratings proved to be fatal.

 

 

That’s why  I believe that the ratings agencies, cognizant of their indirect role in setting up AIG for its demise, would have been receptive to a request by the U.S. government on September 15, 2008 to show some forbearance and delay announcement of a downgrade just at the moment when the Lehman bankruptcy was close to setting off a financial panic.  The downgrades made all the difference in the world, everyone knew it, and the refusal by Dan Jester, Paulson’s special deputy, to forcefully ask Moody’s for a delay in the downgrade is shocking beyond words.