naked capitalism

Glen says:

Pitchfork? Check.
Rope? Check.
Torch? check.

Right, let’s go gets us some swindlers and run ‘em out of town.

Lune says:

Yves, since you’re such a fan of George Orwell, I’m sure you’ll enjoy the end of Animal farm:

Twelve voices were shouting in anger, and they were all alike. No question, now, what had happened to the faces of the pigs. The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.

I guess Orwell understood our politicians (democrat and republican alike) and their puppet masters better than we ever did…

bb says:

AIG has put the u.s. gov’t in stalemate: it can’t let it go bankrupt due to the huge one sided CDS bets. many players will go under as they have no one else to hedge with.
u.s. banks could be saved with another tarp, but european banks won’t be. so the latter will have to liquidate usd positions and send the buck in tailspin. this will make it impossible for the u.s. gov’t to borrow anymore and will lead to monetization of all future debt. hyperinflation will ravage the already decimated pension savings. then repeat again and again until the state of russia of 1998 is reached.

the cheapest option is to support AIG as it is and hope for the best.

and people, don’t be hypocritical by demanding bankers pay cuts! all of us socialists already know that spending, preferrably debt financed, will save the world

Steve says:

Can’t blame the Fed for this earnings surprise. They only own 79.9% of the equity and couldn’t even get a seat on the board. Which is a good thing, because otherwise they would look like dopes for not going over the books and verifying what management was telling them. Fortunately, our confidence in Ben and the lads will remain undiminished. They really couldn’t have known. And good thing they won’t go over 79.9% ownership through a conversion, ’cause that would trigger the change-of-control event on CDS written against AIG, and could, you know, have systemic consequences. Well played, Ben, another bullet dodged! Your confidence in private sector management has already been validated and rewarded!

d4winds says:

AIG, like Citi and now (thanks to Lewis) BofA, is a financial black hole. They will be back with ever larger tin cups with each set of new financials. Each time the story will be “Who could’ve known?”

Sometimes, you just have to quit throwing good money after bad. Let ‘em file. Let the chips fall.

Anonymous says:

ha, this is pure politics. I am pretty sure AIG has a gigantic backing that can push congress and white house.

The question is WHO? (no status quo media is going to report this. Not major news paper, not television, ect)

until somebody reports and names name, this will keep going.

(so. who? of course we are dealing with people who can kill people here. so …)

as of now, and I think the rest of the world will prepare for this to:

This will be Japan style L shape recession. AIG, BoA, Citi will keep sucking up liquidity needed for recovery.

and what’s worst as Asia recover, money will go hard to asia. (think of this as US high growth sapping Japan liquidity in the late 90’s)

I am watching how the asian realign their supply chain (are they going to start making stuff for asian market), how they clean up real estate (china specially), and how the Asian free trade shaping up in general. (flow of money and information are still hard for average investor, compared to western banks)

I figure by late summer we ought to see how asia is doing.

…ugh, the change of money flow won’t be pretty for sure.

Ginger Yellow says:

I’ve got to agree with BB – it’s not the bondholders that the Treasury is worried about, it’s the counterparties, and with good reason. All those losses that AIG’s taking from its CDS portfolio? If AIG goes bust, those losses effectively revert to the counterparties (minus some mark to market already taken on AIG itself). That said, Yves, you’re absolutely right about the way the way the bailout has been handled. If it’s too big to fail, either make the bailout punitive or nationalise formally and be done with it.

Martin, the Netherlands says:

Do I understand correctly that the US government’s participation in the common stock of a company is resteicted to 79.9% because they would have to consolidate the company in the national accounts?

Do I also understand correctly that even owning over three-quarters does not entail the right to fire the board and really star mopping up the mess?

Do I understand correctly that -at least in the case of AIG- the US government has handed over large amounts of money, has received preferred shares (which are, in terms of who gets wiped out in which order, comparable to deeply subordinated bonds, but still some kind of bonds)?

Do I, finally, understand correctly that the US government has agreed to exchange thoese preferred shares for common stock, which will not pay a dividend for years to come, due to some crazy phenomenen called “deferred tax assets”, and are, in terms of riskyness, the first ones to lose their value?

If the answers to these four questions are four times “yes”, then the US government should be congratulated on being such alert regulators, when letting things get out of hand, and on being such tough negotiators, after things had got out of hand.

Anonymous says:

According to CNBC, AIG is about to post another huge loss. “Sources close to the company said the loss will be near $60 billion due to writedowns on a variety of assets including commercial real estate.” The financial channel also reports that the need for capital may be so great that AIG might have to enter Chapter 11, something the government has spent over $130 billion trying to prevent.

At the risk of preaching to the Choir, I have to blow off some steam . . .

AIG going to the Well again is rediculous and sickening. Add Citi’s need to beg again, and GM needing more money than it would take to start a whole new car company . . .

CNBC’s comments indicate that CDS’s are not the problem, but they are one reason why the US supposedly cannot allow AIG to fail. If CDS’s cause problems of this magnitude, why are they still unregulated? But that is just the tip of the iceberg.

The whole scene stinks of stupidity and incompetence. The more people cling to entangled, self-serving fantasy’s, the deeper everyone is being drawn into a very deep black hole.

This is like a caualty in the Civil War – the legs are infected with gangrene. Either we amputate the legs, or the patient is going to die.

jmd says:

Ex-Lehmanite here…you know, every single counterparty has had loads of warning that AIG is on its last legs, for a year now. This is simply governmental malpractice. Counterparties, schmounterparties…they have all had to reserve for the possibility that AIG would not be here for long, and so fearmongering that they will go down with the black hole of AIG is simply mistaken. Maybe hedge funds have not been reserving, but let their investors deal with that. Most pension plans and other regulated investors such as traditional insurance companies have only a small basket of 5% approximately in which to invest in hedge funds, in any case. Remember, here, Blankfein said that GS had reserved against losses to AIG and had collateral

Anonymous says:

“The government is “sympathetic” to AIG’s circumstances….”

Just like the FBI guy who asked Madeoff:

“There must be some INNOCENT EXPLANATION.”

as in:

“Have someone really powerful call me and this all goes away.”

As Naomi Klein has suggested, it is all one giant Crime Scene which grows colder as the FED and US Treasury finance the flight of the PERPS.

Ginger Yellow says:

John, your latter assumption is correct – the rating is relevant mainly because a downgrade requires AIG to post more collateral (and, theoretically, it hurts their ability to generate new business, but that’s hardly an issue now).

jmd – Counterparties have had plenty of warning, but a) cynically, unless they’re in very good shape capital-wise, they’re only going to provision as much as they have to, and b) the US government has given every indication that it will not let AIG default, so maybe they’re not being so unreasonable.

I can guarantee you that most banks haven’t written down the value of AIG CDS to zero. Even monoline CDS, which are much less likely to be supported by the US government and which have been in obvious trouble for even longer than AIG, haven’t been fully written down except for the very worst (and commuted CDS, obviously). For instance, as of February, Barclays reported reserves of just £1.7bn against monoline exposure of £8.4bn. That includes a £2.2bn US RMBS portfolio, 80% of which was speculative grade!

Ginger Yellow says:

FYI, the reserve on that RMBS portfolio is £500m.

Much of AIG’s CDS book was in negative basis trades on AAA CLO tranches. Those are likely to face a lot of downgrades, and some losses, over the next couple of years. Provisions on those are very low at the moment, and marks are quite high, in the few instances where they aren’t being held in the HTM book these days.

I’m not saying AIG should necessarily be propped up (and if it is, it should certainly be nationalised), but it’s simply a fact that if it defaults, banks will have to record tens of billions of dollars of new writedowns (if not more from all the knock-on effects a la Lehman).

Anonymous says:

Yves, I’ve really enjoyed your blog because you lace your insight with outrage. With this piece, however, you’ve overdone the outrage and skimped on the insight, and it comes across as ranting.

At this moment, my outrage has subsided, because I’m quite scared. I hope you will follow this up with some balanced analysis on such questions as other commenters have mentioned: what is the evidence on the effect of letting AIG fail (re: CDS, China, etc.)?

Anonymous says:

to the person from France. I cannot believe the people in the US have not taken to the streets either. Maybe they have and the MSM just don’t report it. The media is bought and paid for by TPTB.

bb says:

for all riot minded readers: you cannot riot! this is anti-social and you will lose your unemployment benefits if arrested for doing that. you cannot do it if employed either for the same reason. you work ‘at will’. you’ve got a mortgage to pay off. by protesting you risk your job and further aggravating the banks’ portfolios. this in turn creates more future tax liability for you on top of the immediate stress of foreclosure.

let me repeat it again: you cannot afford yourself to riot against the crooks and cronies! it is far cheaper to let them plunder your assets and future income.

Anonymous says:

This may be mor “personal” than you think.
Cornelius Starr, and the Starr family that started AIG, is the same family which gave the world “Judge” Kenneth Starr.
His skin at risk here?
how about the Bush family interests in Carlyle? Were they at risk if AIG defaulted on the CDs?
Was this about protecting Republican $$$?
No welfare for you, but welfare in the billions to politically-connected families?

Anonymous says:

bb – thanks for your well-meant advice, but dissent does not have to be criminal.

The desecration and destruction of the once-fantastic economic engine called the USA is progressing at such a pace that any sort of recovery will soon be impossible.

We take action, or we die. It is getting to be that simple.

Fortunately, the spirit of Concord alive & well in many hearts (Check out New Hampshires' HCR6).

A few bold steps could make a huge difference. Start with a 5-year moratorium on all Credit Default Swaps and Mortgage foreclosures.
As for the pirates of Wall Street, start up a new, Federally-owned bank in each State (later to be privatised), and re-enact Glass-Steagal.

At this rate, we have no more than 6 months to get on the road to recovery. From that perspective, we have no option but action like this.

Independent Accountant says:

Ginger Yellow:
I am a member of the tin foil hat brigade. Where is Goldman Sachs hand in this? How much remaining exposure does it and Morgan and the rest of the usual suspects have to AIG?
Glen:
Sorry, no AR-15 here. But I can contribute my Boy Scout skills at knot tying and have plenty of rope. Can you use me?

Anonymous says:

An alternative to revolution is intentional default. Draw down your unsecured credit lines, convert the cash into the sole remaining bearer asset — gold — and then DEFAULT. Creditors will get judgments against you, but they’ll be uncollectable. Sell gold as needed to fund living expenses.

Screwing the banksters for mega-thousands is a very viable option for anyone who doesn’t need to borrow in the foreseeable future. Think like THEY do — that is, think like a criminal. Rob banks the nonviolent, safe, ‘legal’ way. LOL.

Anonymous says:

we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.

Miguel_Swanstein says:

Ginger Yellow – Thanks for the thoughtful comments. I think you are spot on.

So USG is stepping into the breach to perform on AIG’s protection sales contracts as the parent does not have the financial ability to do so.

I suppose the idea is for USG to “run up the tab” on these shortfall payments for as long as is needed with the idea that they will eventually get made whole with the proceeds from AIG’s yard sale of its businesses, while hoping that there no other smoking craters in AIG’s book in the interim (sounds like the Q4 results may throw water on that notion).

Any idea of how much protection they wrote? It seems like we still don’t have are arms around the total exposure. If I were running things, I’d be interrogating Joe Cassano like he was a member of the Taliban (though he’s certainly done more damage to America) to get me a number…..

doc holiday says:

A few ideas here: The falling markets have just hit me this morning and I now understand inside my brain, that the downward spiral is almost The Mechanism or process, by which a discount for future value is being discovered. Hence, as Japan re-sets to a stock market that has headed backwards in time by 27 years, and when you hear that the largest companies there are worth about 1/4 of what they were 18 years ago, you have to stop, sit down and think about this.

We are in the process of redefining the nature of future value and grasping as to what future cash flow is; we are as a global people re-establishing a standard for understanding value, by having an auction that finds a floor for value. The very nature of capitalism and the value of money is being reviewed by a new generation of people around the globe that do not trust the financial system.

The discount for future value is uncertain, because too many banks, holding companies, insurance companies, hedge funds, pension funds, Treasuries, GSEs and a long list of entities involved in collusion and corruption are all unwilling to disclose what assets they are holding — and so they conspire to withhold information which is needed for investor discovery, for DD, for terms related to future value. This is the very process of distrust that kept banks from lending to each other. Now we have a condition where investors realize that it’s not just the banks that are causing liquidity concerns — it’s the entire financial system that is in chaos and decoupled from truth, honesty and standardized accounting laws. The American government with it’s decade of non-regulation has peaked out with it’s TARP corruption and now they have exhausted all credibility and destroyed all confidence and trust in this government. TARP is the tsunami crescendo that snuffed the lights out of capitalism and democracy, because we allowed our leaders to engage in too many unregulated ponzi schemes. Congress and all the nepotism in our government turned a blind eye to the destruction of America, because they were all crooks on the take from lobby groups!

The systemic global crash is simply a process to discover what future value is and the current discount will continue to increase if good assets are not separated from bad corporations. The longer this game of discovery goes on, the less stocks and bonds will be worth, and the longer the governments continue to be in denial and essentially protect their friends, the longer this process will take! We need only look at Japan as a beacon of financial stupidity and look at the cost of denial and pride. Obama has to wake up to the fact that tossing money at this systemic global problem is not a solution, it just contributes to it!

My best bud Einstein, as you all know, screamed and yelled and spit out that you can’t solve a problem on the same level at which it was created, i.e, derivatives got us into this mess, and they aint gonna friggn get us out — the truth will set you free!

See: § 502(5)(E)(E) In estimating net present values, the discount rate shall be the average interest rate on marketable Treasury securities of similar maturity to the cash flows of the direct loan or loan guarantee for which the estimate is being made.



Also see deal with car maker a few years ago with Jimmy Carter, where TREASURY had an actual contract that a car company had to deal with in terms of future obligations:

Sec. 9. // 15 USC 1868. // (a) Loans guaranteed under this Act shall
be payable in full not later than December 31, 1990, and the terms and
conditions of such loans shall provide that they cannot be amended, or
any provision waived, without the Board’s consent.



* Please check for grammer, spelling, logic and shit like that…

Anonymous says:

Swedish Lex said…
Writing from France, I wonder at what point U.S. citizens will take to the streets. I am truly puzzled.

—

I’ve said before that I was keenly jealous of France’s general strike. If you read excellent blogs like Yves instead of watching the US mainstream media, the lack of American outrage is completely incomprehensible.

The average American likely spends 2-8 minutes a day thinking about this, and the tools the mainstream media gives her for her investigations are blunt and inappropriate for the task. Americans are misled, confused, and – let’s admit it – far too complacent about our government.

So long as the paychecks keep clearing, bellies stay full, and entertainment stays on things won’t change. But once/if U-6 unemployment goes over 25%, our kids are going hungry, and Obama is STILL giving political cover and funds to the banks while explaining the new austerity that means we can’t have social security, our pensions, or national health care – then I think our heavily armed and slightly crazy country may give Russia’s shock doctrine crisis some impressive competition in the history books.

- StewPDX

centiare says:

@11:32 – good observation. I’ve been making essentially the same point for quite some time.

Look, the modern welfare state is completely dependent on the underlying economic model to sustain tax receipts and fund transfer payments. No welfare, no peace.

The dirty secret is that the USA is not some happy, unified culture/society. In fact, it’s a lot closer to the armed, violent sectarian situation in Iraq (in our case, race) than many outsiders think.

Now, here’s the important point – it doesn’t necessary have to be any specific type of economic model to sustain the welfare state; FIRE just so happens TO BE the current, extant model.

In other words, if the welfare state had developed during the period of NE whaling, we’d have the same exact scenario as gov’t desperately attempted to restore order as the whale population was being decimated.

And that’s what make this particular period so dangerous – the market isn’t being allowed to re-allocate investment to finance new, future productive products/services like alternative energy, medical discoveries, etc.

The central governments are so intent on preserving power/order, that they are using the private economy’s investment capital to keep their own game going.

doc holiday says:

Blurtman said…,

Not all is lost and the spiral is based on the finality of rarity and at some point, things and places of value will be wanted by those who have faith in order being restored:

FYI: “A collection with this quality of modern paintings is scarce,” said Pierre Loudmer, a Paris-based art adviser. He said he was not surprised to see high prices paid even in a recession: “Established private collectors, art foundations and new players want this kind of cake.”

Seven artists’ records were achieved, headed by the 35.9 million euros, with fees, paid for Henri Matisse’s 1911 still life of cowslips in a vase, Les coucous, tapis bleu et rose estimated at 12 million euros to 18 million euros.

The evening’s most spectacular performance against estimate was the 8.9 million euros paid by Giraud for a unique 1921 Marcel Duchamp “readymade” of a perfume bottle with a photograph of the artist’s female alter ego, Beautiful Breath: Veil Water on the label, taken by fellow-surrealist, Man Ray. The 6-inch high boxed bottle, featured in many books on Duchamp, had been acquired by Saint Laurent and Berge in 1990, also from the Paris dealers Galerie Tarica, who supplied the couple with their most important acquisitions.

Before the auction, dealers said that this was the first time a major unique, rather than editioned work by Duchamp had come on the auction market in recent years. The final price quintupled the high estimate and exceeded the auction high of $1.8 million paid in 1999 for a replica of the artist’s notorious urinal readymade.

>> Ok, so suckers are born every day — but, there is a point where things become rare and increase in value; this probably will not happen with derivatives that are were engineered with smoke and mirrors, but things that are real, that are rare which will continue to have pedigree will be sought after. Hence, the process to find a market bottom and standardize the discount for future value will take people coming off the sideline to invest in things in real assets that are discounted, and obviously, this will take friggn time!

Anonymous says:

Very simply, AIG is a corporation with limited liability. It may very well be insolvent and unable to pay its obligations. In that case, a corporation should go bankrupt; it is the only sound management practice.

To continue throwing money into that black hole, means we are not running a corporation, we are running a charity.

We are running a charity for GS. How nice of us.

Something has to be done about this. It’s time to dust off the Declaration of Independence.

melpol says:

If anybody thinks times are bad in the U.S. they should thank God that they are not in the same country as the writer of this blog.

“Hard times are here and it is getting worse. Donations cannot buy enough food to feed a starving family. Savages from a near by jungle village claim that the buttocks and thighs from a medium size human can provide enough food to last a month. The obese are hiding in terror because their meat is the choicest. Only people with farming experience can avoid eating their family and friends. Let us pray that good times return along with traditional food.”

Let’s wish them luck!!

Anonymous says:

@anonymous 10:17:

Those corporations’ commitments extend only to the assets of the corporations themselves. They are organized under law as LIMITED LIABILITY corporations, and their liabilities are thus legally limited.

To expect a corporation in the finance game to go beyond its legal liabilities is absurd, that is never how the game has been played, and the rules must remain the same now.

Anonymous says:

What is going on is that the system has already crashed, and the coverup is in progress.

Lots of stuff is in play, it’s very exciting now. It should be a time when we can have a lot of influence.

Let’s exert as much influence as we can in as many ways as we can find. Think outside the box. The world is watching.

DanyBoy says:

Alexander Hamilton would be proud!

Protecting the “uber-class” is a time-honored tradition even in America and is codified in our laws.

Today the American uber-class is the corporate elite, embodied in the golfing CEO (used to be exclusively Fortune 500, now even startup stars can be included, we’re less picky).

Where things got off the rails: Bonuses and big payouts are accorded before performance rather than contingent on performance. Rich guys or gals who have a guarantee of wealth don’t have the hunger and drive to innovate, compete hard and excel. The key Darwinian forces in our system perished.

Instead of rewarding results we reward “talent”. This is the key mistake: capitalism was not designed to reward you for being born with certain genes. Those genes need to be tested and challenged and competed against and must struggle to succeed. Think anyone at AIG is trying to struggle? Our government wants everyone to believe they are cool and collected as usual, so they are covering up for them.

alex black says:

The question had been posed – “who do these government officials think they are speaking to – morons?”

Today Bernanke said that he thinks maybe the recession will end in 2009. The stock market immediately rose 4%

I rest my case.

Anonymous says:

Thanks Yves. I don’t recall those legal theories, but I would not be surprised if they are known.

That is the way to go. If the CDS are making the company insolvent, void those CDS or declare bankruptcy. Certainly don’t pour good money down the rat-hole.

Enough bailouts for rich people and foreigners!

Anonymous says:

Why aren’t Americans rioting? Um, Barack Obama wondered out loud why Americans weren’t rioting in the streets, before he was elected, and he lives in the US.

You underestimate how dumb most Americans are and how education levels have declined in the past decades.

Americans who are Republican still believe that tax cuts work to create jobs. For 8 years, George W Bush and dimwit former US Labor Secretary Elaine Chao rarely met their monthly jobs creation target. In the US, it takes the creation of 100K-130K new jobs created per month just to absorb new graduates into the US workforce. Most Americans don’t know the 100K-130K threshold, because main stream media rarely prints it, certainly not the Wall Street Journal.

A good example: Most Republicans swallowed all the “family values” claptrap that Fox News and George W Bush could pump out. I remember the Fox channel when it started as a UHF channel. Fox ran “Married With Children” twice a night, and it was one of the most salacious comedy shows on television. Kelly Bundy (Christina Applegate) was a teen slut. The next door neighbor Marcy D’arcy (Amanda Bearse) was gay (for all the Republican right wing gay phobia). If Fox could maximize advertising dollars, they did, good business principles. If they could maximize voter turnout by putting emotionally laden wedge issues on the ballot, Karl Rove saw that it happened. Most Americans are too dumb to put 2 and 2 together.

Anonymous says:

Doesn’t matter what the motivation is. If they’re not doing the job, they need to be replaced. Now, not in 2 years.

Anonymous says:

I guess AIG is the conduit through which hedge funds and I-Banks take their cash.

BAd AIG, they need all that cash! When in reality people are robbing America through this entity.

If allowed to go bust, how could the long holders of the SWAP’s collect their cash.

SOme are being enriched in unimaginable terms.

I am Canadian and this makes MY blood boil.

If I were an American, I wouldn’t just sit and watch my country being looted by the banksters.

The US is like a jelly doughnut. The insiders are sucking out all the good stuff. Soon enough all that will be left is a hollow shell.

Anonymous says:

Blurtman said…

What is the motivation here – incompetence or complicity?

—

That is the multi-trillion dollar question, isn’t it?

Hanlon Razor’s goes “Never attribute to malice that which can be adequately explained by stupidity”, and it is tempting to resort to this simple formulation.

The problem I have with it is this: There are countless ways to be stupid, many of which would have ended in rendering the ruling elite relatively poor and with modest power.

But this is not what we have. We have massive “idiocy” that just happens to result in epic looting and massive gains for the ruling class. I can’t believe this is a coincidence, and therefore find stupidity a totally inadequate explanation for what has occurred.

I think I owe Yves for pointing me to William K. Black’s paper on “Control Fraud”. I’m now reading his book, and through its lens can’t help but see the entire US economy as a giant con:

http://www.utexas.edu/utpress/books/blabes.html

- StewPDX

Anonymous says:

As an average chump (a.k.a. “taxpayer”), do I have the option to take Citi stock over AIG stock? I’d rather not hold any stocks listing below $1… I have my pride, you know…

Vinny GOLDberg

Anonymous says:

Vinny I agree with you. Some Chinese colleagues were arguing with me the other day, thinking Americans are a bunch of weaklings. They are living here in America, some on H1B visas, some on more permanent status.

I reminded them of WWII, that Americans are not incompetent. I also took the opportunity to mention briefly that we saved their bacon from the Japanese.

We can do it again. We just have to knock the bankers down to size. We’re working on it. TARP didn’t sail through easily did it? Nobody (outside the country) expected all that trouble we caused, did they? It was just the opening salvo.

bondinvestor says:

one thing which i think everyone is missing from this debate is exactly what the true ramifications of "punishing the bankers" is. if you let AIG file – and the entire european financial system collapses – the losses are going to be felt by more people than just the managements, staff, equity and sub debt investors.

the losses will be borne by ordinary savers who placed their money in the bank because they thought that their deposit account was a safe, liquid instrument that was as good as cash.

you cannot make depositors whole if you are going to liquidate big swathes of the financial system at fire sale prices. furthermore, the amount of money required to make whole all the deposit accounts around the world that would be settled below par in a mass unwinding of the system is too great to be financed in the government debt market at anything like the current rates.

so if you're the Fed & Treasury, what are you supposed to do? i agree that the politics of bailing out mis-managed, over-leveraged companies is awful. and i completely agree that the process has been bungled by the government. the retention bonuses, etc are things that probably should have been handled differently.

but, let's not forget that the goal here is to calm the markets, prevent a disastrous unwinding of the system, and ultimately protect taxpayers.

it's not clear to me that the wholesale liquidation of AIG at fire sale prices, the commutation (or worse) of the CDS contracts, or a punitive attitude towards non-AIGFP managers accomplishes any of these goals.

they may make the public "feel" better in the short term, but the risks are enormous and very real.

if there is a run on citigroup, bank of america, UBS, RBS, Lloyds, etc, depositors are not going to get 100 cents on the dollar AND have unlimited access to their money. their deposits will either be termed out to match the maturity profile of the assets, OR they will be allowed to cash out at some fraction of par. that will be the only way to fairly protect the rights of ALL depositors in the midst of a systemic run.

the poster who said that AIG has the US government over a barrel is right. shame on us for allowing a massive, unregulated player in the CDS market to become the single largest counterparty to the global banking system. but let's certainly not compound the error by (a) forcing a systemic meltdown; and (b) destroying the franchise value of the operating assets that are going to be used to repay the debt the public has incurred to effect a gradual unwinding of the CDS book.

Blurtman says:

bondinvestor,

The risk lowering capabilities of the AIG CDS are fictitious and so are the ratings of financial institutions who claim to be lowering their risk through these CDS.

As fictitious as the ratings of mortgage backed securities and CDO’s have been.

Continuing this fraud is not a good solution.

It has been estimated that 50% of CDS are not held for hedging purposes, i.e., are held by speculators, but you do not address this.

Your logic is nothing more than a shakedown based upon creating fear. I am doing what should always be done with bullies – calling you out as being FOS.

Brad says:

Thanks Yves and brain trust, y’all are great. I like seeing ideas I have sliced and diced here in the comments before I post them…

We former neglected children are so inclined to hope that today is the day authority will come around and acknowledge us… So perhaps this next hope is illusory: could Obama, by focusing on across the board deficit reduction, be constructing the right perspective from which to place bank looting in context? Congress members will watch with much more interest when their program are on the block vis á vis zombie bank reanimation. Opportunity cost only matters if you actually believe you must choose.