CNN Money: AIG Finally Names Names

[flpoljunkie]

AIG finally names names

The insurer yields to congressional pressure to name the banks that have pocketed taxpayer funds in a massive bailout.

By Colin Barr, senior writer

March 15, 2009: 5:56 PM ET

NEW YORK (Fortune) -- AIG gave in to demands from Congress Sunday, naming the banks that pocketed billions of dollars last fall as part of a federal bailout of the troubled insurer.

AIG, facing intensifying scrutiny of its pay practices and questions about whether taxpayer money has been well spent on its behalf, released a list Sunday afternoon of the firms that benefited from the government's efforts last year to prop up the New York-based company. The list is topped by numerous European institutions and two big Wall Street firms, Goldman Sachs (GS, Fortune 500) and Merrill Lynch (ML).

AIG, which has avoided bankruptcy only because of $170 billion worth of taxpayer funding, said it released the list of trading partners, along with the sums they received, because the company "recognizes the importance of upholding a high degree of transparency with respect to the use of public funds." AIG said it made the announcement after consulting with the Federal Reserve, which has led the bailout of the company.

At issue is which banks were made whole by federal funds extended to AIG in the name of unwinding its troubled credit default swap and securities lending businesses.

On Sunday, AIG named the banks that received collateral on AIG's credit default swap obligations as a result of the government's support of AIG, as well as those that received payments as a result of the government-backed CDO purchases and those that got funds in the unwinding of AIG's securities lending business.

~The top recipients of CDS-related collateral were France's Societe Generale, with $4.1 billion, Germany's Deutsche Bank (DB), with $2.6 billion, and Goldman Sachs and Merrill Lynch of the United States, with $2.5 billion and $1.8 billion.

They were also the top recipients of payments under the CDO purchase program, with SocGen getting $6.9 billion, Goldman $5.6 billion, Merrill $3.1 billion and Deutsche Bank $2.8 billion.

The top beneficiaries of payments tied to the unwinding of the securities lending portfolio were Barclays (BCS) of the U.K., with $7 billion, Deutsche Bank, with $6.4 billion, BNP Paribas of France, with $4.9 billion, Goldman with $4.8 billion and Bank of America (BAC, Fortune 500) with $4.5 billion.

http://money.cnn.com/2009/03/15/news/companies/barr_aig.fortune/index.htm?postversion=2009031517

[Tansy_Gold]

1. Okay, so does this mean the entities that got bailout funds

directly and have now received indirect bailout funds via AIG will use those funds to repay the original direct bailouts???


(Oh, silly me, they will just use that to pay their execs obscenely filthy huge humongous bonuses, right, while we taxpayers go scratch.)



Tansy Gold, rethinking her aversion to FRSPs

[FrenchieCat]

2. I was just watching CNN, and it appears that they were saying that most

on the list were our major financial institutions: http://tpmmuckraker.talkingpointsmemo.com/2009/03/aig_counter-party_list_is_heavy_on_foreign_banks.php

* Goldman Sachs
* Deutsche Bank
* Merrill Lynch
* Société Générale
* Calyon
* Barclays
* Rabobank
* Danske
* HSBC
* Royal Bank of Scotland
* Banco Santander
* Morgan Stanley
* Wachovia
* Bank of America
* Lloyds Banking Group

Somehow, I get uncomfortable when corporate media starts pushing a financial scandal....and CNN has done nothing but with this one. The noise that they are making just keeps me ambivilant about these findings. I'm not sure why, but I'm not going to explode till I hear more. In otherwords, I don't feel fully informed, and I'll be damned if I get outraged just because I'm told that I should be.

[flpoljunkie]

7. CNN is just reporting what AIG released today. The numbers speak for themselves.

[Bolo Boffin]

3. Societe Generale (big French bank) got $11 billion

Wow. I can hear the jokes starting now.

[rhombus]

4. Why are US tax payers being forced to bail out foreign banks?

This is absolutely ridiculous. What irritates me the most is that the French government has done close to zero bailing out their own banks, while we here in the US are being told to fork tens of billions of dollars over to these foreign banks via A.I.G.

This is nothing but thievery and thuggery going on. AIG is a SHAM.

[Bolo Boffin]

5. Because AIG sold them obligations to do so.

And now we own AIG.

[rhombus]

6. Well, then it's time to fully nationalize AIG then

Without the US tax payers essentially keeping AIG on life support, AIG's bondholders would have lost everything anyway. We don't owe AIG anything.

[Lucky Luciano]

8. The point of pumping money into AIG was to prevent systemic

risk. Not paying AIG's obligations would have led to systemic risk in a big way as all the banks on that list could have fallen like dominoes....would have been way worse than LEH's bankruptcy - especially since it would have come right after LEH.

Saving AIG's stockholders and bondholders was less of the problem. I thought it was made clear that system risk was trying to be stemmed by the AIG bailout :shrug: In other words, this should not be a surprise to anyone.

[flpoljunkie]

11. What's outrageous is that some 80% of the $62 trillion in credit default swaps were speculative.

Eric Dinallo, the insurance superintendent for New York State, has said that some 80 percent of the estimated $62 trillion in credit default swaps outstanding in 2008 were speculative.

And, this, of course, from the NYT editorial below:

Still, the trading partners knew, or should have known, how dangerous the swaps were. And that is not necessarily the whole story. In the manic years of this decade, credit default swaps took off as a way to bet on the likelihood of default by a firm or an investment portfolio, without having to own any financial interest in the firm or portfolio. That is definitely not insurance, it is gambling. The reason it is not illegal gambling is that, in 2000, Congress specifically exempted credit default swaps from state gaming laws.

http://www.nytimes.com/2009/03/15/opinion/15sun1.html

[Lucky Luciano]

12. So you want to outlaw low strike puts too since

buying a ton of low strike puts is similar to betting on a bankruptcy? Actually some capital structure arbitrage guys and gals often sell CDS and buy low strike puts when the relative value of the two instruments is a bit out of whack. Then you hit the jackpot if the company does not default but the stock gets slammed below the put strike price and the CDS expires.

BTW, the $62T number is misleading - that is not the value of the swaps - it is the notional - hugely different concepts. Also a lot of swaps are often offset in the following way:

I might own $10MM Dec 12 CDS for GM with Deutsche Bank and Might have sold $10MM Dec 12 CDS for GM with Goldman Sachs. Say the recovery is 15% and GM defaults. Then Deutsche pays me $8.5MM (Ten bucks less the recovery) and I pay Goldman $8.5MM. It offsets. There is a lot of that kind of crap in CDS land. Nevertheless, there is clearly a lot of CDS out there - do not want to debate that. Central clearing, more transparency, and regulations are very much needed. I would hate to see the CDS concept thrown away altogether as there are some cool things about the concept. It always sucked that shorting bonds was so hard to do because there was so little borrow available for bonds - the CDS makes it easier to effectively short bonds which I like.

I believe the 80% figure you mention though. Many of the remaining 20% were probably traded as a "basis package" where a customer buys a bond and the CDS all in one shot because the bond returns more yield than the cost of holding the CDS. It takes away default risk and earns a small profit. The DB credit prop trader Boaz Weinstein lost a billion dollars in 2008 by buying these basis trades because the bonds underperformed the CDS horribly - mostly because the bonds tie up a lot of the balance sheet for banks and CDS did not - so there was forced selling of bonds that were not made up for by widening in the CDS spreads. My trading desk actually had $75MM in CDS and bonds for Nortel and this basis trade cost my desk a fuckload of money - then Nortel defaulted and the position was made whole since the bond and the CDS converge on default (assuming the counterparty does not also default). Boaz left DB to try to start a fund...DB would be retarded to unwind those basis trades because if credit markets get better, then the money should be made back and if things get much worse, then they would be made whole by companies that default.

[flpoljunkie]

13. Heads these gamblers win, tails we taxpayers lose.Credit Phil Gramm's Commodity Futures Trading Act-

passed by a unanimous voice vote in the Senate and signed into law by President Clinton in November, 2007.

[Life Long Dem]

14. They are nothing more than a bunch of con men who have scammed the mortgage loan system.

And the bystanders watching this go by were also involved, because they were probably part of the scam to shut them up something was thrown their way, including Greenspan - who's only defense is that if he didn't know how or what was going on, then no one else would know or could possibly know because Greenspan didn't know, and that he said this will happen again and again because it always does with this stuff called money - who have all taken advantage of innocent citizens.

Perhaps the home buyer isn't totally innocent, but even these people - a good percentage of them - probably expected some form of credit check to give them some restraint toward the purchase of their first home through the normal responsible way. The blame doesn't belong on the home owner. If I remember, everything was fine, until the house of cards started tumbling, then jobs disappeared and the blame then stops with any blame toward the home buyer. Not when they caused this crash, and that are losing their jobs are the one's with less job experience under their belt, who as we all know would most likely be a first time home owner.

So let's put the blame where it belongs and stop listening to these con men because they are a bunch of cons conning America, and they all should be thrown into jail. Packing all that shit up into one, has to be guilty of knowingly breaking a law because this is pure bull shit, and it's being dumped on all of America.

And fire every last one of them at AIG.

[Skittles]

9. WHY THE FUCK WEREN'T CONDITIONS SET

BEFORE THEY GAVE THEM THE FUCKING MONEY

[high density]

10. I don't know why we can't just tell AIG to break the contracts

AIG claims it is "legally obligated" to pay these bonuses that were negotiated before the bailout money was paid out. It seems to me the company has gone through a sort of modified bankruptcy and should be allowed to break these contracts just as other companies have done with promises of pensions, health care, etc. These bonuses obviously would not be paid if we had allowed the company to go bust last year.

[beachmom]

15. Because it would take down Europe.

Another system fail.