The Real Outrage Here

[flpoljunkie]

And, the reason why we need public financing of federal campaigns. We need Congress working for the public interest, not the special interests. (Asterisk mine.)

A.I.G. was a key player in a type of unregulated derivative called a credit default swap. Such swaps are often defined as a form of insurance because the seller guarantees payment to investors in case their investments go bust. They are not safe insurance in any familiar sense, however, because A.I.G. was not required to set aside reserves in the event of a claim. That is why, when the bubble burst and defaults rose, A.I.G. was unable to make good, provoking the bailouts.

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

*Part of Phil Gramm's Commodity Futures Modernization Act signed into law by President Clinton.

[dkf]

1. I think I read that AIG didn't have to provide collateral as long as they were

AAA rated. But when that fell through, they had to come up with billions, ergo the Bailout.

[soothsayer]

2. hell, let's change their rating back and save billions

[flpoljunkie]

3. No collateral required for credit default swaps, but when that part of AIG's business failed,

it put the entire company at risk--and of course, all the banks who'd bought credit default swap insurance from AIG. The regular insurance part of AIG was AAA rated.