Comments on: How AIG Facilitated European Banks Circumventing Minimum Capital Requirements http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks.html Mon, 23 Nov 2009 10:17:20 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Anonymous http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks.html#comment-18668 Anonymous Wed, 01 Oct 2008 11:31:00 +0000 http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks-circumventing-minimum-capital-requirements/#comment-18668 I have a question for Yves or anybody, related to the upcoming Lehman ISDA auction on October 10th (ft article:http://www.ft.com/cms/s/0/73a3d4d8-8eff-11dd-946c-0000779fd18c.html).<br/>From my understanding, Lehman had about 150 Billion $ of bonds oustanding when it defaulted and it is estimatd that there is (sandy Chen from panmure) 350 Bn $ of CDS contract written on Lehman. It was estimated in this FT article that recovery rate on the bond is between 15 to 19 cents on the dollar and so investors who wrote protection will pay 81 to 85 cents on the dollar. Meaning those investors will have to pay, let's take 80cents on the dollar for 350 bn $, roughly 280 Bn $. So an additional 280 Bn $ losses for these unknown lehman CDS underwriters which are mostly banks, insurance companies and hedge funds. What sort of impact do you believe this losses could have? (keeping in mind that in absolute terms there is 0 loss to the market since the insured will get the CDS underwriters's 280 bn $.) I have a question for Yves or anybody, related to the upcoming Lehman ISDA auction on October 10th (ft article:http://www.ft.com/cms/s/0/73a3d4d8-8eff-11dd-946c-0000779fd18c.html).
From my understanding, Lehman had about 150 Billion $ of bonds oustanding when it defaulted and it is estimatd that there is (sandy Chen from panmure) 350 Bn $ of CDS contract written on Lehman. It was estimated in this FT article that recovery rate on the bond is between 15 to 19 cents on the dollar and so investors who wrote protection will pay 81 to 85 cents on the dollar. Meaning those investors will have to pay, let’s take 80cents on the dollar for 350 bn $, roughly 280 Bn $. So an additional 280 Bn $ losses for these unknown lehman CDS underwriters which are mostly banks, insurance companies and hedge funds. What sort of impact do you believe this losses could have? (keeping in mind that in absolute terms there is 0 loss to the market since the insured will get the CDS underwriters’s 280 bn $.)

]]> By: Richard Kline http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks.html#comment-18644 Richard Kline Wed, 01 Oct 2008 08:28:00 +0000 http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks-circumventing-minimum-capital-requirements/#comment-18644 *aaaiiiiiEEEEEE* Eurobanks using CDSs as regulatory capital. . . . Why does it occur to me only now that human beings aren't smart enough to manage their own finances? <br/><br/>And reality based lawyer, the revolving nature of the Pigout Proposal _was_ actually noted by Yves and other commentators immediately upon presentation of the proposal. But with so many flaws and so little time this issue has fallen by the wayside. The nominal tranching of the funding authorization in the present Bill in Congress may impair this revolving nature, I forget, but I do not believe that this 'feature' {sic} was removed. It's something like, if Paulson says he needs it, he can go there. <br/><br/>---And still we have liberal commentators saying, well, we have to do something, so let's pass this to kick the can down the road to 'a better Administration' (i.e. one the commentator has connections in). *ickkk* No, let's not, and say we did: that will have exactly as much positive effect on the _insolvency_ crisis as passing the Pigout Proposal, i.e. none whatsoever. *aaaiiiiiEEEEEE* Eurobanks using CDSs as regulatory capital. . . . Why does it occur to me only now that human beings aren’t smart enough to manage their own finances?

And reality based lawyer, the revolving nature of the Pigout Proposal _was_ actually noted by Yves and other commentators immediately upon presentation of the proposal. But with so many flaws and so little time this issue has fallen by the wayside. The nominal tranching of the funding authorization in the present Bill in Congress may impair this revolving nature, I forget, but I do not believe that this ‘feature’ {sic} was removed. It’s something like, if Paulson says he needs it, he can go there.

—And still we have liberal commentators saying, well, we have to do something, so let’s pass this to kick the can down the road to ‘a better Administration’ (i.e. one the commentator has connections in). *ickkk* No, let’s not, and say we did: that will have exactly as much positive effect on the _insolvency_ crisis as passing the Pigout Proposal, i.e. none whatsoever.

]]> By: Vaudt Varken http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks.html#comment-18633 Vaudt Varken Wed, 01 Oct 2008 07:10:00 +0000 http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks-circumventing-minimum-capital-requirements/#comment-18633 Could it be that the high number for the ING Group is due to it being an insurance company as well? It is public knowledge here in Holland though that ING has kind of a lot of assets it still needs to write down.<br/>And Yves: great site, have been reading it daily for seven months or so. Could it be that the high number for the ING Group is due to it being an insurance company as well? It is public knowledge here in Holland though that ING has kind of a lot of assets it still needs to write down.
And Yves: great site, have been reading it daily for seven months or so.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks.html#comment-18619 Anonymous Wed, 01 Oct 2008 05:26:00 +0000 http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks-circumventing-minimum-capital-requirements/#comment-18619 An excellent and insightlfull explanation by Atlanta Fed governor at following link.<br/><br/>A MUST READ!<br/><br/>http://marketwarnings.blogspot.com/2008/09/credit-and-financial-crisis-explained.html An excellent and insightlfull explanation by Atlanta Fed governor at following link.

A MUST READ!

http://marketwarnings.blogspot.com/2008/09/credit-and-financial-crisis-explained.html

]]> By: Jesse http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks.html#comment-18611 Jesse Wed, 01 Oct 2008 04:19:00 +0000 http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks-circumventing-minimum-capital-requirements/#comment-18611 Kill the Bill v. 2<br/><br/>http://tinyurl.com/4uccq5 Kill the Bill v. 2

http://tinyurl.com/4uccq5

]]> By: Hamlet, Act 3, scene 2, line 230 http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks.html#comment-18605 Hamlet, Act 3, scene 2, line 230 Wed, 01 Oct 2008 03:31:00 +0000 http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks-circumventing-minimum-capital-requirements/#comment-18605 The lady doth protest too much, methinks.<br/><br/>Why the keen interest in page loading? Perhaps Yves need to update security? The lady doth protest too much, methinks.

Why the keen interest in page loading? Perhaps Yves need to update security?

]]> By: Yves Smith http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks.html#comment-18602 Yves Smith Wed, 01 Oct 2008 03:24:00 +0000 http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks-circumventing-minimum-capital-requirements/#comment-18602 Sorry for the site performance. Have asked Ed Wright to look into it. The culprit is probably the Amazon ads, hopefully he will undo them soon.<br/><br/>Again, apologies. Sorry for the site performance. Have asked Ed Wright to look into it. The culprit is probably the Amazon ads, hopefully he will undo them soon.

Again, apologies.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks.html#comment-18601 Anonymous Wed, 01 Oct 2008 03:14:00 +0000 http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks-circumventing-minimum-capital-requirements/#comment-18601 Yves,<br/><br/>I've been having page-loading problems too. It takes much longer than it used to take for your blog to load. From what I can tell, it's related to the Amazon ads. Yves,

I’ve been having page-loading problems too. It takes much longer than it used to take for your blog to load. From what I can tell, it’s related to the Amazon ads.

]]> By: Steve http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks.html#comment-18600 Steve Wed, 01 Oct 2008 02:45:00 +0000 http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks-circumventing-minimum-capital-requirements/#comment-18600 AIG was in the same business as the monolines. As AIG is shrunk, it is unclear to me anyway how their CDS wraps can still be considered money good. AIG can meet its funding needs thanks to the Fed, but its balance sheet remains a sinkhole. Its derivatives book is unsaleable, and I think there's been some pretty myopic optimism here. Of course, if assets AIG has wrapped wind up with the government, then the horrendous losses will come but in the next administration. AIG was in the same business as the monolines. As AIG is shrunk, it is unclear to me anyway how their CDS wraps can still be considered money good. AIG can meet its funding needs thanks to the Fed, but its balance sheet remains a sinkhole. Its derivatives book is unsaleable, and I think there’s been some pretty myopic optimism here. Of course, if assets AIG has wrapped wind up with the government, then the horrendous losses will come but in the next administration.

]]> By: Edwardo http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks.html#comment-18597 Edwardo Wed, 01 Oct 2008 02:21:00 +0000 http://www.nakedcapitalism.com/2008/09/how-aig-facilitated-european-banks-circumventing-minimum-capital-requirements/#comment-18597 European banks are More wobbly than U.S. ones?<br/><br/>This statement demands clarification since it would impossible to be more wobbly than the now dead<br/>Wamu and Wachovia for example? European banks are More wobbly than U.S. ones?

This statement demands clarification since it would impossible to be more wobbly than the now dead
Wamu and Wachovia for example?

]]>