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Luke_Wilbur    5

On November 10, 2008, AIG and the FRBNY established Maiden Lane III, a financing entity, to purchase the securities underlying certain CDS contracts from the counterparties to such contracts, allowing the cancellation of the contracts. Attachment B lists payments made by Maiden Lane III to such counterparties.

 

Municipalities in the states listed on Attachment C received a total of $12.1 billion from AIGFP between September 16, 2008 and December 31, 2008 in satisfaction of Guaranteed Investment Agreement (GIA) obligations. GIAs are structured investments with a guaranteed rate of return. Municipalities typically use GIAs to invest the proceeds from bond issuances until the funds are needed.

 

Public aid was also used to satisfy obligations to financial counterparties related to AIG’s securities lending operations. Securities lending counterparties listed on Attachment D received $43.7 billion from September 18, 2008 to December 31, 2008.

 

AIG Chairman and Chief Executive Officer Edward M. Liddy said that the counterparty and collateral information show that billions in government assistance flowed to dozens of financial counterparties and municipalities during a time of acute stress in the economy.

 

Mr. Liddy emphasized that AIG’s disclosure of the counterparties does not change AIG’s commitment to maintaining the confidentiality of its business transactions. “Our decision to disclose these transactions was made following conversations with the counterparties and the recognition of the extraordinary nature of these transactions,” Mr. Liddy said.

 

Collateral Postings Under AIGFP CDS

 

The collateral amounts reflected in Schedule A represent funds provided by AIG to the counterparties indicated after September 16, 2008, the date on which AIG began receiving government assistance.

 

Societe Generale - $4.1 Billion

Deutsche Bank - 2.6 Billion

Goldman Sachs - 2.5 Billion

Merrill Lynch - 1.8 Billion

Calyon - 1.1 Billion

Barclays - 0.9 Billion

UBS - 0.8 Billion

DZ Bank - 0.7 Billion

Wachovia - 0.7 Billion

Rabobank - 0.5 Billion

KFW - 0.5 Billion

JPMorgan - 0.4 Billion

Banco Santander - 0.3 Billion

Danske - 0.2 Billion

Reconstruction Finance Corp - 0.2 Billion

HSBC Bank - 0.2 Billion

Morgan Stanley - 0.2 Billion

Bank of America - 0.2 Billion

Bank of Montreal - 0.2 Billion

Royal Bank of Scotland - 0.2 Billion

Other - 4.1 Billion

Total Collateral Postings - $22.4 Billion

 

AIG has used the balance of the public aid it received during that time period for other purposes, including the funding of Maiden Lane II and III, debt repayment and capital support for some of its businesses.

 

The counterparties received additional collateral from AIG prior to this date, and AIG’s SEC report relating to ML III reflects the aggregate amount of collateral that counterparties were entitled to retain pursuant to the terms of the ML III transaction.

 

Maiden Lane III Payments to AIGFP CDS Counterparties

 

Deutsche Bank - $2.8 Billion

Landesbank Baden-Wuerttemberg - 0.1 Billion

Wachovia - 0.8 Billion

Calyon - 1.2 Billion

Rabobank - 0.3 Billion

Goldman Sachs - 5.6 Billion

Société Générale - 6.9 Billion

Merrill Lynch - 3.1 Billion

Bank of America - 0.5 Billion

The Royal Bank of Scotland - 0.5 Billion

HSBC Bank USA - 0.0 Billion (amounts round out to zero)

Deutsche Zentral-Genossenschaftsbank - 1.0 Billion

Dresdner Bank AG - 0.4 Billion

UBS - 2.5 Billion

Barclays - 0.6 Billion

Bank of Montreal - 0.9 Billion

 

Total $27.1 Billion

 

AIG’s original problem – an over-reliance on U.S. residential mortgage-backed securities (RMBS) in its investment portfolios – has now been deepened by weakness in the commercial mortgage-backed securities market, the global real estate market, the global equities market, slowing business and consumer spending activity and the concomitant demand for higher liquidity by regulators and customers around the world.

 

Maiden Lane LLC

 

Following is the introduction to the Federal Reserve Statistical Release H.4.1 (Factors Affecting Reserve Balances)

 

For Release at

4:30 P.M. Eastern time

July 3, 2008

 

The Board's H.4.1 statistical release, "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks," has been modified to include information related to Maiden Lane LLC, a limited liability company formed to facilitate the arrangements associated with JPMorgan Chase & Co.'s acquisition of Bear Stearns Companies, Inc.

 

On June 26, 2008, the Federal Reserve Bank of New York (FRBNY) extended credit to Maiden Lane LLC under the authority of section 13(3) of the Federal Reserve Act. This limited liability company was formed to acquire certain assets of Bear Stearns and to manage those assets through time to maximize repayment of the credit extended and to minimize disruption to financial markets. Payments by Maiden Lane LLC from the proceeds of the net portfolio holdings will be made in the following order: operating expenses of the LLC, principal due to the FRBNY, interest due to the FRBNY, principal due to JPMorgan Chase & Co., and interest due to JPMorgan Chase & Co. Any remaining funds will be paid to the FRBNY.

 

Consistent with generally accepted accounting principles, the assets and liabilities of Maiden Lane LLC have been consolidated with the assets and liabilities of the FRBNY in the preparation of the statements of condition shown on the release because the FRBNY is the primary beneficiary of Maiden Lane LLC.

 

The consequences of this consolidation appear on the release in the following ways. The extension of credit from the FRBNY to Maiden Lane LLC is eliminated as is the accrued interest on this loan. The net portfolio holdings of Maiden Lane LLC appear as an asset on the statement of condition of the FRBNY (table 5), the consolidated statement of condition of all Federal Reserve Banks (table 4), and factors affecting reserve balances of depository institutions (table 1). The liabilities of Maiden Lane LLC to entities other than the FRBNY are included in "other liabilities and capital" in table 1 and in "other liabilities and accrued dividends" in table 4 and table 5.

 

Information on the LLC is presented separately in the newly created table 2, "Information on Principal Accounts of Maiden Lane LLC." This table presents the fair value of the net portfolio holdings of the LLC along with the book value of the outstanding principal of the loan extended by the FRBNY, the book value of accrued interest payable to the FRBNY, and the book value of outstanding principal and accrued interest on the loan payable to JPMorgan Chase & Co. Information pertaining to fair values will be updated quarterly.

 

Following is a note for the new table (2) now dedicated to "Principal Accounts of Maiden Lane LLC"

 

Note: On June 26, 2008, the Federal Reserve Bank of New York (FRBNY) extended credit to Maiden Lane LLC under the authority of section 13(3) of the Federal Reserve Act. This limited liability company was formed to acquire certain assets of Bear Stearns and to manage those assets through time to maximize repayment of the credit extended and to minimize disruption to financial markets. Payments by Maiden Lane LLC from the proceeds of the net portfolio holdings will be made in the following order: operating expenses of the LLC, principal due to the FRBNY, interest due to the FRBNY, principal due to JPMorgan Chase & Co., and interest due to JPMorgan Chase & Co. Any remaining funds will be paid to the FRBNY.

 

Source:

http://www.maidenlanellc.com/

 

Information on Principal Accounts of Maiden Lane III LLC

http://www.federalreserve.gov/releases/h41/Current/

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Guest August   
Guest August

Thought you might like this Letter From Senate Finance Committee to CEO of AIG

 

Grassley, Baucus Seek Details of AIG Bonuses, Any Claw-back Policies

 

Sen. Chuck Grassley, ranking member of the Committee on Finance, and Sen. Max Baucus, chairman, today asked the head of the American International Group, Inc. (AIG) for details of how it decided to allocate $160 million in bonuses after taking $170 billion in rescue money from taxpayers and any policies to prevent the awarding of bonuses to executives who did not perform well.

The text of the senators’ letter to Edward M. Liddy, chairman and chief executive officer of AIG, follows here.

 

March 18, 2009

 

Via Electronic Transmission

Mr. Edward M. Liddy

Chairman and Chief Executive Officer

American International Group, Inc.

2929 Allen Parkway

Houston, Texas 77019

 

Dear Mr. Liddy:

On March 14, 2009, you wrote to Treasury Secretary Timothy Geithner that American International Group, Inc. (AIG) plans to pay $165 million in bonuses to AIG executives, despite the fact that these executives were partly responsible for the company’s near collapse. You state that, although you do not agree with the contracts awarding these bonuses, the contracts are "legal, binding obligations of AIG" and AIG cannot get out of these contracts without there being “serious legal, as well as business, consequences for not paying.” Although these payments were ostensibly part of an employee retention plan, there are press reports that many bonus recipients are no longer with the company.

 

Because taxpayers have a deep interest in making sure their money is not squandered by financial institutions receiving bailout money, we are interested in receiving information on these executive bonuses. Thank you for promptly providing the Finance Committee with a copy of the employee retention plan and legal opinions regarding the litigation risk of failure to pay the bonuses in question. However, in order to gain a more complete understanding of facts and circumstances, please provide the Committee with the following additional information by March 25, 2009:

 

1) a list of the titles, descriptions, names and position descriptions for each employee to whom AIG paid a bonus of $1 million or more on March 15, 2009;

2) the length of time each such person was employed by AIG;

3) an explanation why it is critical to retain that particular employee;

4) whether that employee was still employed by AIG on March 15, 2009; and

5) to what extent the employee has committed to remain with AIG and for what length of time.

 

Surveys indicate that a large number of companies have “claw-back” policies to recoup money if an executive or manager (or the company itself) does not perform as well as originally believed, or where compensation was paid based on sales or other performance goals that were later found to be illusory. Does AIG have a meaningful “claw-back” policy, and if so, please describe it in your response.

 

The documents and information should be sent electronically in PDF format to Brian_Downey@finance-rep.senate.gov. Any questions or concerns should be directed to John Angell of Senator Baucus’s staff and Emilia DiSanto or Chris Condeluci of Senator Grassley’s staff at (202) 224-4515. Thank you for your cooperation in this matter.

 

Sincerely,

Max Baucus

Chairman

 

Charles E. Grassley

Ranking Member

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Guest August   
Guest August

H.R. 1586

ADDITIONAL TAX ON BONUSES RECEIVED FROM CERTAIN TARP RECIPIENTS

MARCH 18, 2009

 

Additional tax on bonuses received from certain TARP recipients. The bill would impose a 90 percent tax on bonuses paid after December 31, 2008, by companies that have received over $5 billion in TARP funds, Fannie Mae, and Freddie Mac. The tax would also apply to bonuses paid by entities affiliated with these companies. Three-fourths of the TARP funds that have been spent went to companies that would be covered by this bill. This tax will not apply to any bonus that is returned to the company in the same taxable year that the bonus is paid. The bill would not affect taxpayers with adjusted gross income below $250,000 or employees of companies that have received $5 billion or less in TARP funds.

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Guest Grubin   
Guest Grubin

The Ninth Amendment says simply: "No Bill of Attainder or ex post facto Law shall be passed." Judges and lawyers may obfuscate and evade, but common sense says that a 90% retroactive tax violates both of these restrictions: The whole point of the proposed law is confiscation.

 

I shudder to think of what would happen if Tribe applied this treatment to the First Amendment. The Constitution should not be putty in the hands of any branch of the government.

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Guest Fed Up   
Guest Fed Up

The funny part of this that many of the people who got bonuses are British. We are just giving our money away to the rest of the world and not worrying about the people who actually are paying for it.

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Guest August   
Guest August

Read this

 

The London office lost as much as a half a trillion dollars betting on exotic derivatives. Joseph Cassano, who ran the renegade unit for eight years, earned a total of $280 million while running it into oblivion. At least seven London office executives have been promised payouts of $3 million each. It's not clear precisely how much of the $165 million in bonus money is headed overseas, nor how much of that has been paid out thus far. But whatever has been paid is not coming back.

 

http://gawker.com/5175726/british-con-men-...pt-from-aig-tax

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Guest Fed Up   
Guest Fed Up

You are going to love this one.

 

Cassano grew up in Brooklyn, New York, where his father was a policeman. He earned a political science degree from Brooklyn College in 1977. He worked at investment bank Drexel Burnham Lambert during their junk bond phase.

 

In 1987, AIG hired Cassano as one of the first ten people in the Financial Products unit, as Chief Financial Officer. In 1994, Thomas R. Savage appointed Cassano as head of the Transaction Development Group. Cassano accepted the 1998 proposal by J.P. Morgan to package credit-default swaps on Broad Index Secured Trust Offering (nicknamed Bistros). Cassano considered these collateralized debt obligations a key event: "It was a watershed event in 1998 when J.P. Morgan came to us, who were somebody we worked with a great deal, and asked us to participate."

 

Before he was forced to retire in March 2008, Cassano received $315 million: $280 million in cash and an additional $34 million in bonuses. An initial $1 million-a-month consulting fee was later canceled. According to Matt Taibbi,

 

In fact, Cassano remained on the payroll and kept collecting his monthly million through the end of September 2008, even after taxpayers had been forced to hand AIG $85 billion to patch up his frak-ups. When asked in October why the company still retained Cassano at his $1 million-a-month rate despite his role in the probable downfall of Western civilization, CEO Martin Sullivan told Congress with a straight face that AIG wanted to "retain the 20-year knowledge that Mr. Cassano had." (Cassano, who is apparently hiding out in his lavish town house near Harrods in London, could not be reached for comment.)

 

In the wake of the scandal, United States regulators and the United Kingdom Serious Fraud Office began investigating Cassano's dealings to determine whether they were just excessive and risky, or criminal.

 

Cassano was a political contributor to the campaigns of Chris Dodd , Barack Obama and the Republican Representative Nancy L. Johnson

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Guest August   
Guest August

SFO to look into AIG Financial Products Corp.

 

The Serious Fraud Office has today launched a preliminary inquiry into the UK operations of AIG Financial Products Corp., which is a subsidiary of American International Group, Inc. (AIG).

The SFO is cooperating with US authorities who are already conducting separate, independent investigations involving conduct at AIG Financial Products Corp and with UK- based financial services regulator, the Financial Services Authority. SFO's inquiry does not concern the insurance operations of AIG in the UK or elsewhere.

 

The SFO's swift action is in keeping with its new approach under the current Director of intervening proactively at an early stage when it is made aware of irregularities which warrant further investigation.

 

The Director of the Serious Fraud Office, Richard Alderman, said:

 

“It is right for us to look into the UK operations of AIG Financial Products Corp., to determine if there has been criminal conduct. We will use our full range of powers to seek information and to speak to those with an inside knowledge of the company's operations.”

AIG Financial Products Corp. and AIG are cooperating with the SFO and have offered their assistance to the SFO as it conducts its inquiry.

 

Serious Fraud Office

Elm House,

10-16 Elm Street,

London WC1X 0BJ, United Kingdom

 

Press Office tel: 020 7239 7001/7045/7000/7132

Main switchboard tel: 020 7239 7272

Mobile: 0781 807 6688

Email: press.office@sfo.gov.uk

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Guest Fed Up   
Guest Fed Up

It is amazing how a few number of people can bring down the world economy. AIG FP knew they were exploiting a regulatorly loophole to run a hedge fund out of an insurance company. AIG FP should be subject to prosecution.

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BlackSun    0

Two presidential administrations ago, credit default swaps were permitted without regulation. The last administration allowed it to continue and the Obama administration inherited the ensuing chaos. Derivatives traders are the real reason why the economy tanked.

 

The Financial Times' Gillian Tett wrote a great article:

 

http://www.ft.com/cms/s/0/5c28ad86-1250-11...?nclick_check=1

 

After all, during the past decade, the theory behind modern financial innovation was that it was spreading credit risk round the system instead of just leaving it concentrated on the balance sheets of banks.

 

But the AIG list shows what the fatal flaw in that rhetoric was. On paper, banks ranging from Deutsche Bank to Societe Generale to Merrill Lynch have been shedding credit risks on mortgage loans, and much else.

 

Unfortunately, most of those banks have been shedding risks in almost the same way -- namely by dumping large chunks on to AIG. Or, to put it another way, what AIG has essentially been doing in the past decade is writing the same type of insurance contract, over and over again, for almost every other player on the street.

 

Far from promoting "dispersion" or "diversification," innovation has ended up producing concentrations of risk, plagued with deadly correlations, too. Hence AIG's inability to honor its insurance deals to the rest of the financial system, until it was bailed out by US taxpayers.

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Guest Joel Welty   
Guest Joel Welty
H.R. 1586

ADDITIONAL TAX ON BONUSES RECEIVED FROM CERTAIN TARP RECIPIENTS

MARCH 18, 2009

 

Additional tax on bonuses received from certain TARP recipients. The bill would impose a 90 percent tax on bonuses paid after December 31, 2008, by companies that have received over $5 billion in TARP funds, Fannie Mae, and Freddie Mac. The tax would also apply to bonuses paid by entities affiliated with these companies. Three-fourths of the TARP funds that have been spent went to companies that would be covered by this bill. This tax will not apply to any bonus that is returned to the company in the same taxable year that the bonus is paid. The bill would not affect taxpayers with adjusted gross income below $250,000 or employees of companies that have received $5 billion or less in TARP funds.

 

The bonuses are chump change compared to the shakedown AIG and other corporations have been able to get from us because they "are too big to be allowed to fail." We need to split AIG and each of the other banks and insurance companies into twenty or thirty smaller companies each. Then let them all compete. And if one or two or a dozen fail, nobody cares. They won't be big enough to affect the economy as a whole.

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Guest Leonard   
Guest Leonard

I think we are going to find out that the London-based AIG FP office did not buy any securities or issue any insurance. I think we are going to find out that this is an even bigger Ponzi Scheme. All these hedge fund assets were derived from the futures market.

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Guest Phil the Engineer   
Guest Phil the Engineer

I think we can all thank Phil Gramm and Bill Clinton, who signed the Commodity Futures Modernization Act of 2000. These two crooks should be thrown in jail with Madoff.

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Guest Kara N.   
Guest Kara N.

I am wondering does our country guarantee the debts of private U.S. banks to foreign countries?

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Guest LAW_*   
Guest LAW_*

Here are some remarks by the President yesturday about this issue:

 

Q Thank you, Mr. President. Your Treasury Secretary and the Fed Chairman were on Capitol Hill today asking for this new authority that you want to regulate big, complex financial institutions. But given the problems that the financial bailout program has had so far -- banks not wanting to talk about how they're spending the money, the AIG bonuses that you mentioned -- why do you think the public should sign on for another new, sweeping authority for the government to take over companies, essentially?

 

THE PRESIDENT: Well, keep in mind that it is precisely because of the lack of this authority that the AIG situation has gotten worse. Understand that AIG is not a bank, it's an insurance company. If it were a bank and it had effectively collapsed, then the FDIC could step in, as it does with a whole host of banks, as it did with IndyMac, and in a structured way, renegotiate contracts, get rid of bad assets, strengthen capital requirements, resell it on the private marketplace.

 

So we've got a regular mechanism whereby we deal with FDIC-insured banks. We don't have that same capacity with an institution like AIG. And that's part of the reason why it has proved so problematic. I think a lot of people, understandably, say, well, if we're putting all this money in there, and if it's such a big systemic risk to allow AIG to liquidate, why is it that we can't restructure some of these contracts; why can't we do some of the things that need to be done in a more orderly way? And the reason is, is because we have not obtained this authority.

 

We should have obtained it much earlier so that any institution that poses a systemic risk that could bring down the financial system, we can handle, and we can do it in an orderly fashion that quarantines it from other institutions. We don't have that power right now. That's what Secretary Geithner was talking about.

 

And I think that there's going to be strong support from the American people and from Congress to provide that authority so that we don't find ourselves in a situation where we've got to choose between either allowing an enormous institution like AIG -- which is not just insuring other banks but is also insuring pension funds, potentially putting people's 401(k)s at risk if it goes under -- that's one choice. And then the other choice is just to allow them to take taxpayer money without the kind of conditions that we'd like to see on it.

 

So that's why I think the authority is so important.

 

Q Why should the public trust the government to handle that authority well?

 

THE PRESIDENT: Well, as I said before, if you look at how the FDIC has handled a situation like Indy Bank, for example, it actually does these kinds of resolutions effectively when it's got the tools to do it. We don't have the tools right now.

 

Q On AIG, why did you wait -- why did you wait days to come out and express that outrage? It seems like the action is coming out of New York and the Attorney General's Office. It took you days to come public with Secretary Geithner and say, look, we're outraged. Why did it take so long?

 

THE PRESIDENT: It took us a couple of days because I like to know what I'm talking about before I speak, you know? (Laughter.)

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Guest ALWAYS RED_*   
Guest ALWAYS RED_*
Collateral Postings Under AIGFP CDS

 

The collateral amounts reflected in Schedule A represent funds provided by AIG to the counterparties indicated after September 16, 2008, the date on which AIG began receiving government assistance.

 

Societe Generale - $4.1 Billion

Deutsche Bank - 2.6 Billion

Goldman Sachs - 2.5 Billion

Merrill Lynch - 1.8 Billion

Calyon - 1.1 Billion

Barclays - 0.9 Billion

UBS - 0.8 Billion

DZ Bank - 0.7 Billion

Wachovia - 0.7 Billion

Rabobank - 0.5 Billion

KFW - 0.5 Billion

JPMorgan - 0.4 Billion

Banco Santander - 0.3 Billion

Danske - 0.2 Billion

Reconstruction Finance Corp - 0.2 Billion

HSBC Bank - 0.2 Billion

Morgan Stanley - 0.2 Billion

Bank of America - 0.2 Billion

Bank of Montreal - 0.2 Billion

Royal Bank of Scotland - 0.2 Billion

Other - 4.1 Billion

Total Collateral Postings - $22.4 Billion

 

AIG has used the balance of the public aid it received during that time period for other purposes, including the funding of Maiden Lane II and III, debt repayment and capital support for some of its businesses.

 

The counterparties received additional collateral from AIG prior to this date, and AIG’s SEC report relating to ML III reflects the aggregate amount of collateral that counterparties were entitled to retain pursuant to the terms of the ML III transaction.

 

Maiden Lane III Payments to AIGFP CDS Counterparties

 

Deutsche Bank - $2.8 Billion

Landesbank Baden-Wuerttemberg - 0.1 Billion

Wachovia - 0.8 Billion

Calyon - 1.2 Billion

Rabobank - 0.3 Billion

Goldman Sachs - 5.6 Billion

Société Générale - 6.9 Billion

Merrill Lynch - 3.1 Billion

Bank of America - 0.5 Billion

The Royal Bank of Scotland - 0.5 Billion

HSBC Bank USA - 0.0 Billion (amounts round out to zero)

Deutsche Zentral-Genossenschaftsbank - 1.0 Billion

Dresdner Bank AG - 0.4 Billion

UBS - 2.5 Billion

Barclays - 0.6 Billion

Bank of Montreal - 0.9 Billion

 

Total $27.1 Billion

 

The Top Four Beneficiaries of the AIG Bailout? Goldman Sachs and Three Foreign Banks

So if we didn't avert a banking crisis with the AIG bailout, what exactly have the taxpayers gotten for their $170 billion? Well, nothing so far. But here's the list of the top four beneficiaries of the AIG bailout:

 

 

Goldman Sachs: $12.9 billion

 

 

Société Générale (France) $11.9 billion

 

 

Deutsche Bank (Germany) $11.8 billion

 

 

Barclays (United Kingdom) $7.9 billion

 

 

This is the real scandal of the AIG bailout.

 

Add the other TARP funds Goldman Sachs received to the AIG pass-through money and you get an astounding total of $23 billion from the taxpayers.

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Raven    0
The Top Four Beneficiaries of the AIG Bailout? Goldman Sachs and Three Foreign Banks

So if we didn't avert a banking crisis with the AIG bailout, what exactly have the taxpayers gotten for their $170 billion? Well, nothing so far. But here's the list of the top four beneficiaries of the AIG bailout:

Goldman Sachs: $12.9 billion

Société Générale (France) $11.9 billion

Deutsche Bank (Germany) $11.8 billion

Barclays (United Kingdom) $7.9 billion

This is the real scandal of the AIG bailout.

 

Add the other TARP funds Goldman Sachs received to the AIG pass-through money and you get an astounding total of $23 billion from the taxpayers.

 

All of those billions could of been put to a better use if they would just given it to the American people, and I do not mean in tax breaks when we all know who gets those. People could buy products, pay off auto, house, utilities where it would get to where it really be needed at. Back into the economy. But that is just my opinion.

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Guest NEW YORK STATE ATTORNEY GENERAL   
Guest NEW YORK STATE ATTORNEY GENERAL

STATEMENT FROM ATTORNEY GENERAL CUOMO REGARDING NEW DEVELOPMENT OVER AIG BONUSES

My Office’s investigation of AIG is continuing and we are proceeding with our security assessment for the employees. Through that process, my Office has been working with AIG and its employees in an attempt to assess the status of the $165 million in bonuses that were paid on March 15, 2009.

 

We have been working our way down the list beginning with the recipients who received the largest bonuses. So far, 9 of the top 10 bonus recipients have agreed to give the bonuses back. Of the top 20, 15 have agreed to return the bonuses.

 

Of the $165 million pool, we calculate that employees have agreed to return approximately $50 million. It bears noting that 47 percent of the $165 million pool went to Americans (approximately $80 million).

 

I would like to say this to the individuals who have given the money back - You have done the right thing. You have done what this country now needs and demands. We are living in a new era of corporate and individual responsibility. I thank you for setting an example for the rest of the company.

 

I thank those employees. Our investigation and security assessment continues.

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Guest Foreign Trader   
Guest Foreign Trader

Conspiracy is becoming reality.

 

**************************

 

"Our investigation into corporate bonuses has led us to an investigation of the credit-default swap contracts at AIG,” Cuomo said yesterday in a statement. “CDS contracts were at the heart of AIG’s meltdown. The question is whether the contracts are being wound down properly and efficiently or whether they have become a vehicle for funneling billions in taxpayer dollars to capitalize banks all over the world.”

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Guest Gretchen Morgenson   
Guest Gretchen Morgenson

“DERIVATIVES are dangerous.”

 

That simple sentence, written by Warren Buffett, begins an enlightening discussion in Berkshire Hathaway’s most recent annual report. Mr. Buffett’s views on derivatives, gleaned from his own unhappy encounters with them, should be required reading for all United States taxpayers.

 

Why? Because we own almost 80 percent of the American International Group, the giant insurer whose collapse was a direct result of derivatives it sold during the late, great credit boom.

 

How much money has gone to counterparties since the company’s collapse? The person briefed on the deals put the figure at around $50 billion.

 

Unfortunately, that is likely to rise.

 

According to its most recent financial statements, A.I.G. had $302 billion in credit insurance commitments at the end of 2008. Of course, the company is not going to have to make good on all that insurance: the underlying securities are not all going to zero.

 

But as the economy deteriorates, A.I.G.’s insurance bets certainly become more perilous. And because most of A.I.G.’s swaps are known as the “pay as you go type,” collateral must be supplied when the underlying debt declines in value. Swap arrangements made by other insurers require

payments only if a default occurs.

 

So the meter is constantly running at A.I.G. Just as quickly as taxpayer funds flow into the firm, chunks of it go right out the door to settle derivatives claims.

 

A.I.G.’s insurance commitment stood at “only” $302 billion in part because the government has already voided $62 billion of the protection A.I.G. had written on pools of especially toxic securities. The underlying collateral on those contracts, valued at about $32 billion or so, now sits in a facility that the Federal Reserve Bank of New York oversees and which we, the taxpayers, own.

 

In order to rip up those contracts, the taxpayers had to make A.I.G.’s counterparties whole by buying the debt that A.I.G. had insured and paying out — in cash — the remaining amount owed to the counterparties.

 

Of the $302 billion in insurance outstanding at A.I.G., about $235 billion was sold to foreign banks and covers prime home mortgages and corporate loans. The banks that bought this insurance did so to reduce the money they must set aside for regulatory capital requirements.

 

A.I.G. also wrote $50 billion of insurance on pools of corporate loans. These contracts are performing O.K. for now, the company has said.

 

But there’s yet another complication that will probably force A.I.G. to cough up cash more quickly than it otherwise might have had to. That’s because it didn’t simply write insurance protection on debt; it also entered into yet another derivative contract — known as an interest rate swap — with counterparties buying the protection.

 

The reason A.I.G. entered into the second contract was that banks feared they were also exposed to interest rate risks on the loans bundled into debt pools. Presto! A.I.G. was happy to remove that risk by writing another complicated swap.

 

Now, however, A.I.G. not only has to meet collateral calls as the value of the debt it insured withers, but also has to post collateral related to the interest rate swaps.

 

Another troubling aspect of these deals is how long it takes to untangle them when they go awry.

 

Back to Mr. Buffett’s recent shareholder letter:

when Berkshire acquired the insurance company General Re in 1998, he wrote, General Re had 23,218 derivatives contracts that it had struck with 884 counterparties.

 

Mr. Buffett wanted out from under the contracts and he began unwinding them. “Though we were under no pressure and were operating in benign markets as we exited,” he said, “it took us five years and more than $400 million in losses to largely complete the task.”

 

When you look back with the benefit of hindsight, it is truly amazing how outsized A.I.G.’s insurance commitment was, at $440 billion. After all, in 2005, when A.I.G. put many of these swaps on its books, the market value of the entire company was around $200 billion.

 

That means the geniuses at A.I.G. who wrote the insurance were willing to bet more than double their company’s value that defaults would not become problematic.

 

That’s some throw of the dice. Too bad it came up snake eyes for taxpayers.

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Guest Nancy H_*   
Guest Nancy H_*
“DERIVATIVES are dangerous.”

 

That simple sentence, written by Warren Buffett, begins an enlightening discussion in Berkshire Hathaway’s most recent annual report. Mr. Buffett’s views on derivatives, gleaned from his own unhappy encounters with them, should be required reading for all United States taxpayers.

 

Why? Because we own almost 80 percent of the American International Group, the giant insurer whose collapse was a direct result of derivatives it sold during the late, great credit boom.

 

How much money has gone to counterparties since the company’s collapse? The person briefed on the deals put the figure at around $50 billion.

 

Unfortunately, that is likely to rise.

 

According to its most recent financial statements, A.I.G. had $302 billion in credit insurance commitments at the end of 2008. Of course, the company is not going to have to make good on all that insurance: the underlying securities are not all going to zero.

 

But as the economy deteriorates, A.I.G.’s insurance bets certainly become more perilous. And because most of A.I.G.’s swaps are known as the “pay as you go type,” collateral must be supplied when the underlying debt declines in value. Swap arrangements made by other insurers require

payments only if a default occurs.

 

So the meter is constantly running at A.I.G. Just as quickly as taxpayer funds flow into the firm, chunks of it go right out the door to settle derivatives claims.

 

A.I.G.’s insurance commitment stood at “only” $302 billion in part because the government has already voided $62 billion of the protection A.I.G. had written on pools of especially toxic securities. The underlying collateral on those contracts, valued at about $32 billion or so, now sits in a facility that the Federal Reserve Bank of New York oversees and which we, the taxpayers, own.

 

In order to rip up those contracts, the taxpayers had to make A.I.G.’s counterparties whole by buying the debt that A.I.G. had insured and paying out — in cash — the remaining amount owed to the counterparties.

 

Of the $302 billion in insurance outstanding at A.I.G., about $235 billion was sold to foreign banks and covers prime home mortgages and corporate loans. The banks that bought this insurance did so to reduce the money they must set aside for regulatory capital requirements.

 

A.I.G. also wrote $50 billion of insurance on pools of corporate loans. These contracts are performing O.K. for now, the company has said.

 

But there’s yet another complication that will probably force A.I.G. to cough up cash more quickly than it otherwise might have had to. That’s because it didn’t simply write insurance protection on debt; it also entered into yet another derivative contract — known as an interest rate swap — with counterparties buying the protection.

 

The reason A.I.G. entered into the second contract was that banks feared they were also exposed to interest rate risks on the loans bundled into debt pools. Presto! A.I.G. was happy to remove that risk by writing another complicated swap.

 

Now, however, A.I.G. not only has to meet collateral calls as the value of the debt it insured withers, but also has to post collateral related to the interest rate swaps.

 

Another troubling aspect of these deals is how long it takes to untangle them when they go awry.

 

Back to Mr. Buffett’s recent shareholder letter:

when Berkshire acquired the insurance company General Re in 1998, he wrote, General Re had 23,218 derivatives contracts that it had struck with 884 counterparties.

 

Mr. Buffett wanted out from under the contracts and he began unwinding them. “Though we were under no pressure and were operating in benign markets as we exited,” he said, “it took us five years and more than $400 million in losses to largely complete the task.”

 

When you look back with the benefit of hindsight, it is truly amazing how outsized A.I.G.’s insurance commitment was, at $440 billion. After all, in 2005, when A.I.G. put many of these swaps on its books, the market value of the entire company was around $200 billion.

 

That means the geniuses at A.I.G. who wrote the insurance were willing to bet more than double their company’s value that defaults would not become problematic.

 

That’s some throw of the dice. Too bad it came up snake eyes for taxpayers.

 

Well put, Gretchen: you should write for a newspaper.

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Guest AIG SUCKS   
Guest AIG SUCKS
You are going to love this one.

 

Cassano grew up in Brooklyn, New York, where his father was a policeman. He earned a political science degree from Brooklyn College in 1977. He worked at investment bank Drexel Burnham Lambert during their junk bond phase.

 

In 1987, AIG hired Cassano as one of the first ten people in the Financial Products unit, as Chief Financial Officer. In 1994, Thomas R. Savage appointed Cassano as head of the Transaction Development Group. Cassano accepted the 1998 proposal by J.P. Morgan to package credit-default swaps on Broad Index Secured Trust Offering (nicknamed Bistros). Cassano considered these collateralized debt obligations a key event: "It was a watershed event in 1998 when J.P. Morgan came to us, who were somebody we worked with a great deal, and asked us to participate."

 

Before he was forced to retire in March 2008, Cassano received $315 million: $280 million in cash and an additional $34 million in bonuses. An initial $1 million-a-month consulting fee was later canceled. According to Matt Taibbi,

 

In fact, Cassano remained on the payroll and kept collecting his monthly million through the end of September 2008, even after taxpayers had been forced to hand AIG $85 billion to patch up his frak-ups. When asked in October why the company still retained Cassano at his $1 million-a-month rate despite his role in the probable downfall of Western civilization, CEO Martin Sullivan told Congress with a straight face that AIG wanted to "retain the 20-year knowledge that Mr. Cassano had." (Cassano, who is apparently hiding out in his lavish town house near Harrods in London, could not be reached for comment.)

 

In the wake of the scandal, United States regulators and the United Kingdom Serious Fraud Office began investigating Cassano's dealings to determine whether they were just excessive and risky, or criminal.

 

Cassano was a political contributor to the campaigns of Chris Dodd , Barack Obama and the Republican Representative Nancy L. Johnson

 

Read this excerpt from the Business Insider

 

http://www.businessinsider.com/aig-execs-w...betrayed-2009-3

 

...Joe Cassano betrayed us. The CDO business was his. The other businesses were profitable and still are. When the executive in charge of risk challenged him he was told to shut up. When it blew up Joe walked around the office, looking at people who had worked loyally for him (no choice there if you wanted to stay) and took home $1,000,000 per month, knowing that those around him were going to lose their savings and more. We have.

 

Ok, it was a huge blow but the government stepped in and my husband still had a job for now. But the description had changed.

 

Since January 2008 he has been working with Congressional auditors and investigators and the FBI to compile evidence on the deals and dealings of the people responsible, most particularly Joe Cassano.

 

Then the government and AIG parent lied to us. My husband had been asked to, and signed an agreement to stay for the next 2 years. In October we were told that all the prior compensation we had been forced to 're-invest' in AIG was gone and would never ever be paid to us EVER no matter whether the company ever made any more money ever again.

 

It was a body blow. It was what we had worked 15 years for. It was our children's education, our retirement, the down payment on a house (we own nothing). Can you feel it? That's the draining away of hope.

 

But one bone was thrown - we were assured that the 'retention payments' (remember we're still on a 15 year old salary that's never risen so this is actually the bulk of our annual compensation)

would be paid.

 

Assured by Cuomo, the Federal Government and Liddy, the CEO of AIG. So he went back to work for another 6 months.

 

They paid us part in December - I suppose I should have smelled a rat, but that's that 20/20 hindsight thing. It was nice, we'd planned on no Christmas as we didn't expect the money until March. So the boys got to pick out something they really wanted and we had a nice Christmas.

 

The year before they had moved our payment from December to March. Yes, we had budgeted for 12 months and it suddenly turned into 15. Could you do that? Go 3 months without getting paid. Amazingly we managed.

 

We waited worried that the March payment might not come, despite the assurances. We counted the days until the transfer was to be made, checking the FX rate, wondering what the final number would be that we would live on and try to rebuild the children's education fund with - retirement fund will have to wait.

 

And then our government betrayed us, painted us as thieves and threw our co-workers in Connecticut to the mob. No one ever approached anyone at FP to re-negotiate those contracts and everyone currently screaming about them knew what they contained in October if not in January.

 

And now Cuomo says that the security of our families can be purchased by returning the compensation we had been promised with his re-assurance in October. He is no better than a highwayman waiving a gun "Your money or your lives."

 

Now I know what it would take for my husband to work AIGFP.

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Guest Enron   
Guest Enron

A little education in finance is needed to understand when you talk about AIG's CDOs.

 

Collateralized debt obligations (CDOs) are a type of structured asset-backed security (ABS) whose value and payments are derived from a portfolio of fixed-income underlying assets. CDOs are assigned different risk classes, or tranches, whereby "senior" tranches are considered the safest securities.

 

The word tranche is French for slice, section, series, or portion. In the financial sense of the word, each bond is a different slice of the deal's risk. All the tranches together make up what is referred to as the deal's capital structure or liability structure. They are generally paid sequentially from the most senior to most subordinate (and generally unsecured), although certain tranches with the same security may be paid pari passu.

 

In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities.

 

The more senior rated tranches generally have higher ratings than the lower rated tranches. For example, senior tranches may be rated AAA, AA or A, while a junior, unsecured tranche may be rated BB. However, ratings can fluctuate after the debt is issued and even senior tranches could be rated below investment grade (less than BBB).

 

Tranches with a first lien on the assets of the asset pool are referred to as "senior tranches" and are generally safer investments. Typical investors of these types of securities tend to be conduits, insurance companies, pension funds and other risk averse investors.

 

In the United States, the term lien generally refers to a wide range of encumbrances and would include other forms of mortgage or charge. In the U.S., a lien characteristically refers to non-possessory security interests created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt.

 

Tranches with either a second lien or no lien are often referred to as "junior notes". These are more risky investments because they are not secured by specific assets. The natural buyers of these securities tend to be hedge funds and other investors seeking higher risk/return profiles.

 

A hedge fund is an investment fund open to a limited range of investors that is permitted by regulators to undertake a wider range of investment and trading activities than other investment funds and pays a performance fee to its investment manager. Each fund has its own strategy which determines the type of investments and the methods of investment it undertakes. Hedge funds, as a class, invest in a broad range of investments including shares, debt, commodities and so forth.

 

Hedge funds are typically open only to a limited range of professional or wealthy investors. This provides them with an exemption in many jurisdictions from regulations governing short selling, derivative contracts, leverage, fee structures and the liquidity of interests in the fund.

 

Derivatives are financial contracts, or financial instruments, whose values are derived from the value of something else (known as the underlying). The underlying on which a derivative is based can be an asset (e.g., commodities, equities (stocks), residential mortgages, commercial real estate, loans, bonds), an index (e.g., interest rates, exchange rates, stock market indices, consumer price index (CPI) — see inflation derivatives), or other items (e.g., weather conditions, or other derivatives). Credit derivatives are based on loans, bonds or other forms of credit.

 

The main types of derivatives are forwards, futures, options, and swaps.

 

A forward contract is an agreement between two parties to buy or sell an asset at a specified point of time in the future. The price of the underlying instrument, in whatever form, is paid before control of the instrument changes. This is one of the many forms of buy/sell orders where the time of trade is not the time where the securities themselves are exchanged.

 

In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a specified commodity of standardized quality (which, in many cases, may be such non-traditional "commodities" as foreign currencies, commercial or government paper [e.g., bonds], or "baskets" of corporate equity ["stock indices"] or other financial instruments) at a certain date in the future, at a price (the futures price) determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of the contract. They are contracts to buy or sell at a specific date in the future at a price specified today. The future date is called the delivery date or final settlement date. The official price of the futures contract at the end of a day's trading session on the exchange is called the settlement price for that day of business on the exchange.

 

In finance, an option is a contract between a buyer and a seller that gives the buyer the right—but not the obligation—to buy or to sell a particular asset (the underlying asset) at a later day at an agreed price. In return for granting the option, the seller collects a payment (the premium) from the buyer. A call option gives the buyer the right to buy the underlying asset; a put option gives the buyer of the option the right to sell the underlying asset. If the buyer chooses to exercise this right, the seller is obliged to sell or buy the asset at the agreed price. The buyer may choose not to exercise the right and let it expire. The underlying asset can be a piece of property, or shares of stock or some other security, such as, among others, a futures contract.

 

In finance, a swap is a derivative in which two counterparties agree to exchange one stream of cash flow (the movement of cash into or out of a business) against another stream. These streams are called the legs of the swap.

 

The cash flows are calculated over a notional principal amount, which is usually not exchanged between counterparties. Consequently, swaps can be used to create unfunded exposures to an underlying asset, since counterparties can earn the profit or loss from movements in price without having to post the notional amount in cash or collateral.

 

In the context of an interest rate swap, the notional principal amount is the specified amount on which the exchanged interest payments are based; this may be in US dollars, or pounds sterling, or whatever currency the swap is based on. Each period's rates are multiplied by the notional principal amount to determine the value of each counter-party's payment. A notional principal amount is the amount used as a reference to calculate the amount of interest due on an 'interest only class' which is not entitled to any principal.

 

An interest rate swap is a derivative in which one party exchanges a stream of interest payments for another party's stream of cash flows. Interest rate swaps can be used by hedgers to manage their fixed or floating assets and liabilities. They can also be used by speculators to replicate unfunded bond exposures to profit from changes in interest rates. Interest rate swaps are very popular and highly liquid instruments.

 

The Bank for International Settlements reports that interest rate swaps are the largest component of the global OTC derivative market. The notional amount outstanding as of December 2006 in OTC interest rate swaps was $229.8 trillion.

 

Total return swap, or TRS (especially in Europe), or total rate of return swap, or TRORS, is a financial contract which transfers both the credit risk and market risk of an underlying asset. The TRORS allows one party to derive the economic benefit of owning an asset without putting that asset on its balance sheet, and allows the other (which does retain that asset on its balance sheet) to buy protection against loss in its value.

 

CDOs vary in structure and underlying assets, but the basic principle is the same. Essentially a CDO is a corporate entity constructed to hold assets as collateral and to sell packages of cash flows to investors. A CDO is constructed as follows:

 

A special purpose entity (SPE) acquires a portfolio of underlying assets. Common underlying assets held include mortgage-backed securities, commercial real estate bonds and corporate loans.

The SPE issues CDOs in different tranches and the proceeds are used to purchase the portfolio of underlying assets. The senior CDOs are paid from the cash flows from the underlying assets before the junior securities and equity securities. Losses are first borne by the equity securities, next by the junior securities, and finally by the senior securities.

 

From 2003 to 2006, new issues of CDOs backed by asset-backed and mortgage-backed securities had increasing exposure to subprime mortgage bonds. Mezzanine ABS CDOs are mainly backed by the BBB or lower-rated tranches of mortgage bonds, and in 2006, $200 billion in mezzanine ABS CDOs were issued with an average exposure to subprime bonds of 70%. As delinquencies and defaults on subprime mortgages occur, CDOs backed by significant mezzanine subprime collateral experience severe rating downgrades and possibly future losses.

 

As the mortgages underlying the CDO's collateral decline in value, banks and investment funds holding CDOs face difficulty in assigning a precise price to their CDO holdings.

 

First quarter 2008 issuance of US$ 11.7 billion was nearly 94 percent lower than the US$ 186 billion issued in the first quarter of 2007. Moreover, virtually all first quarter 2008 CDO issuance was in the form of collateralized loan obligations backed by middle-market or leveraged bank loans, not by home mortgage ABS. This trend has limited the mortgage credit that is available to homeowners. CDOs purchased much of the riskier portions of mortgage bonds, helping to support issuance of nearly $1 trillion in mortgage bonds in 2006 alone.

 

An asset-backed security is a security whose value and income payments are derived from and collateralized (or "backed") by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid assets that are unable to be sold individually. Pooling the assets allows them to be sold to general investors, a process called securitization, and allows the risk of investing in the underlying assets to be diversified because each security will represent a fraction of the total value of the diverse pool of underlying assets. The pools of underlying assets can include common payments from credit cards, auto loans, and mortgage loans, to esoteric cash flows from aircraft leases, royalty payments and movie revenues.

 

Securities collateralized by home equity loans (HELs) are currently the largest asset class within the ABS market. Investors typically refer to HELs as any nonagency loans that do not fit into either the jumbo or alt-A loan categories. While early HELs were mostly second lien subprime mortgages, first-lien loans now make up the majority of issuance. Subprime mortgage borrowers have a less than perfect credit history and are required to pay interest rates higher than what would be available to a typical agency borrower.

 

Good References:

 

http://www.aima.org/en/knowledge_centre/ed...hedge-funds.cfm

 

http://www.ustreas.gov/press/releases/repo...april152008.pdf

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Guest Teri Watson   
Guest Teri Watson

American International Group, Inc. (AIG) today announced it will accelerate steps to position AIU Holdings (AIU Holdings, Inc. and AIU Holdings LLC, collectively “AIU Holdings”) as an independent entity by transferring the company to a special purpose vehicle (SPV) in preparation for the potential sale of a minority stake in the business, which ultimately may include a public offering of shares, depending on market conditions. This is the first step in the process that was announced on March 2 that will result in AIU Holdings' having a board of directors, management team, and brand distinct from AIG.

 

Under the plan announced on March 2, AIU Holdings will serve as the holding company for AIG’s Commercial Insurance, Foreign General Insurance, and Private Client Group units.

 

“Placing AIU Holdings into an SPV marks the latest significant step to position our strong insurance companies as independent businesses, which will benefit all stakeholders, including policyholders, employees, and distribution partners,” said Edward Liddy, chairman and chief executive officer, AIG.

 

Under the SPV arrangement, AIG intends to contribute the equity of AIU Holdings into an SPV in exchange for preferred and common interests in the SPV. AIG also intends to purchase from AIU Holdings its equity interests in International Lease Finance Corporation, United Guaranty Corporation, and Transatlantic Holdings, Inc. The sale of these interests to AIG further separates the property casualty operations from AIG and its other affiliates. Moreover, the sales clarify the businesses of AIU Holdings, improve the quality of its capital, and help position the company for continued success in the future.

 

“Taken together, these actions accelerate the move of AIU Holdings toward greater independence,” said Kristian P. Moor, president, AIU Holdings, Inc. “Securing the value of these well capitalized insurance companies, which had net written premiums of about $36 billion in 2008 serving millions of clients around the world, is in the best interests of policyholders and the American taxpayer. We are very excited to begin this new chapter in the life of one of the world’s pre-eminent global insurance organizations.”

 

“AIU Holdings is a unique global franchise, and today’s actions signal that the franchise will remain a leader in the general insurance industry for years to come,” said Nicholas C. Walsh, vice chairman, AIU Holdings, Inc.

 

According to the Federal Reserve Bank of New York: “This action is an important next step in the company’s efforts to place key business units in the best position to optimize their operations and maximize their value. It is in the best interests of the American taxpayers, the company and its customers and employees that these efforts succeed.”

 

AIU Holdings has initiated a review of its holding company and subsidiary brands aimed at distinguishing these well-capitalized businesses from AIG.

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Guest CATO   
Guest CATO

Federal Reserve vice chairman Donald Kohn told the Senate Banking Committee that the risk to AIG's derivatives counterparties had nothing to do with the Fed's decision to bail out AIG and that all its counterparties could have withstood a default by AIG. The purpose of a centralized clearinghouse is to allow users of derivatives to separate the risk of the derivative contract from the default risk of the issuer of that contract in instances where the issuer is unable to meet its obligations. Such an arrangement would actually increase the demand and usage of derivatives.

 

Proponents of increased regulation of derivatives also overlook the fact that much of the use of derivatives by banks is the direct result of regulation, rather than the lack of it. To the extent that derivatives such as credit default swaps reduce the risk of loans or securities held by banks, Basel capital rules allow banks to reduce the capital held against such loans.

 

One of Born's proposals was to impose capital requirements on the users of derivatives. That ignores the reality that counterparties already require the posting of collateral when using derivatives. In fact, it was not the failure of its derivatives position that led to AIG's collapse but an increase in calls for greater collateral by its counterparties.

 

Derivatives do not create losses, they simply transfer them; for every loss on a derivative position there is a corresponding gain on the other side; losses and gains always sum to zero. The value of derivatives is that they allow the separation of various risks and the transfer of those risks to the parties best able to bear them. Transferring that risk to a centralized counterparty with capital requirements would have likely been no more effective than was aggregating the bulk of risk in our mortgages markets onto the balance sheets of Fannie Mae and Freddie Mac. Regulation will never be a substitute for one of the basic tenets of finance: diversification.

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