Sunday, March 15, 2009

AIG discloses counterparties

AIG has bowed to public pressure and disclosed its largest counterparties. Full list here. The loudest (and most self-righteous) critics will probably be surprised by a couple things. First, $12.1 billion went to states and municipalities. Second, like I said, a huge chunk of the bailout money ($43.7 billion) went to counterparties in AIG's securities lending program (i.e., its repo desk). These aren't counterparties that made "bad bets" on mortgage-related securities; these are the counterparties that were providing AIG with the day-to-day cash it needs to run its operations. Finally — and I can't emphasize this enough — this list says nothing about each bank's exposure to AIG. We have no idea how well hedged each bank was. (Goldman has said repeatedly that it hedged its exposure to AIG.) It's plainly inaccurate to say that we "saved" SocGen, Barclays, Goldman, etc., just because AIG used bailout money to post collateral on trades with those banks. A bank that was well hedged would have made money even if AIG failed — it might have bought CDS protection on AIG, for example. So just because AIG paid $11 billion of bailout money to SocGen does not mean that SocGen had $11 billion of exposure to AIG.

10 comments:

Pro said...

AIG = Allowing Irreversible Greed.
AIG = All in Greed.
AIG = Arn't I Greedy.
AIG = A$#holes, in general.

This is sick. Why in the world are we helping these companies that keep sending millions to people who do not know how to run a company? They cry yet get paid millions on the "average joes" taxes. Furthermore, I fear this is just the tip of the iceberg. Look what Enterprise rent-a-car did to get bailout funds:

http://www.butasforme.com/2009/02/25/alert-enterprise-rent-a-car-may-have-fired-employees-as-fake-evidence-when-lobbing-for-bailout-money/

Not to make excuses for these people, but the bailouts are making crooks out of everyone that touches the money.

FeirFactor said...

"Second, like I said, a huge chunk of the bailout money ($43.7 billion) went to counterparties in AIG's securities lending program (i.e., its repo desk). These aren't counterparties that made "bad bets" on mortgage-related securities; these are the counterparties that were providing AIG with the day-to-day cash it needs to run its operations."

Good posts on the AIG bailout. Just discovered your site via The Big Picture.

Question: Is "providing AIG with the day-to-day cash it needs to run its operations" the right way to characterize the securities lending business? Didn't these counterparties in effect lend AIG their money and so they are responsible for doing due dilligence on who they are lending to?

AIG didn't need this money to run their day to day operations. The WSJ article you link to says that securities lending was a way for AIG to juice returns on their huge investment portfolio.

Anonymous said...

"A bank that was well hedged would have made money even if AIG failed — it might have bought CDS protection on AIG, for example."

And what precisely do you think those hedges would have been worth after AIG declared bankruptcy? Or are you claiming that the CDS were sold by the Fed?

Anonymous said...

There is only one reason to keep this mystery of exposure going and that is that all the banks would fail if it the truth saw the light of day. The mirror of that is that by holding on to the mystery no bank can succeed as they all become suspect.

Of course you could argue that its all overblown, but then it would be theft.

The truth shall set you free.

Blank Xavier said...

An excellent post.

You just got on my bookmark list.

Anonymous said...

"It's plainly inaccurate to say that we "saved" SocGen, Barclays, Goldman, etc...."

Ok so they would have been fine even if AIG wasn't bailed out, and there was no so called systemic risk. Can I call GS to get my money back?

richmond bc real estate said...

I think the biggest problem we are all facing here is that the whole economic crises was caused by acts within the law. It was within the law to offer mortgages to those who weren't able to pay them back in the long term; in was within the law that number of companies got to the point when they were too big to fail (AIG just one of them); it was within the law they all the big players are connected and don't know who owns what. It's a real mess - and all within the law.

Sorry, just had to vent it.
Jay

Anonymous said...

There existsDiablo 3 Items just one single explanation and keep this particular puzzle regarding direct exposure planning and that is certainly that each one financial institutions might fall short if it the reality found an effective solution involving day. Your reflect of that is always that through Runescape Goldkeeping the particular mystery virtually no bank could be successful because they almost all turn into think.

Trần Duy Thuận said...

Trần Duy Thuận Blog đang cần nhận gia công tại nhà. Ai có cần người nhận gia công tại nhà tphcm liên hệ mình nhé. Truy cập vào đặt vé máy bay giá rẻ vietjet để có thêm kinh nghiệm khi đi máy bay nhé.

Fire Ball said...

Bạn đang tìm mua các sản phẩm điện máy cũ? Bạn chưa tìm ra nơi để mua? Nếu là như thế hãy ghế qua shop thằng ghờm. Nơi bán các loại máy lạnh cũ toshiba, nơi bán máy giặt cũ hcm hàng đầu, dễ dàng sở hữu cho mình một chiếc tủ lạnh mini cũ giá rẻ. Hãy đến để sở hữu cho mình những sản phẩm với giá cả tốt nhất và chất lượng hàng đầu.

Hãy đến với ngôi nhà kiến thức với chuyên mục có thể bạn chưa biết sẽ giúp bạn giải đáp được những thắc mắc như fa là gì, atsm là gì, email là gì... Hãy ghé qua để cập nhật kiến thức mới.