Comments on: AIG reveals counterparties to collateral postings

By: Ranger Turtle

Ranger Turtle — Tue, 17 Mar 2009 16:03:01 +0000

I hate the ‘AIG bonuses’ and ‘paying foreign banks with our money’, and I’m wondering what the amount of CDS left to be paid-out is, where it will go, and how long until we can shut down the government ownership/obigations involved with AIG.
Also, regulations must be put in place FAST, in order to NOT make more AIGs.

By: Edward Harrison

Edward Harrison — Tue, 17 Mar 2009 13:29:54 +0000

sobers,

my view is that they have done so because they are subsidizing global banks in a way they thought less likely to be revealed to the public as such. if they had gone and handed these banks money directly, that would have been scandalous. However, that is effectively what has been done surreptiously.

I believe they erred in assuming it would not be found out. The most scandalous thing for Americans I reckon, is the fact that most of the banks are foreign. So we are seeing taxpayer money used to help out foreign banks while ordinary Americans suffer. Not very equitable, if you ask me.

By: Sobers

Sobers — Tue, 17 Mar 2009 13:24:49 +0000

Why do this now? Presumably the only reason to settle these contracts now( at inflated prices) is because you think they underlying debt is dodgy in the extreme, and you’ll end up paying out more later. Otherwise why not just wait and see who actually goes bust and pay out on an individual basis?

Or is is some sneaky way for the Fed to pump money into the system without too much media interest?

By: Edward Harrison

Edward Harrison — Mon, 16 Mar 2009 21:47:54 +0000

teapack,

my understanding is that AIG has fully unwound the relevant contracts and have received the collateral in exchange for the funds. Therefore, the collateral will never be returned. The contracts are settled. For more on how the CDS market, see my post: http://www.creditwritedowns.com/2008/10/lehman-brothers-primer-on-credit.html

Cheers.

By: teapack

teapack — Mon, 16 Mar 2009 21:19:44 +0000

hi, collateral is required when the counterparty is not sure that AIG is safe…but when the price of protection goes down, will the counyerparty return collateral to aig?