They paid what to who?
March 15, 2009 7:14 PM Subscribe
On the heels of news about $165 million to be paid as bonuses to AIG employees, the company has released
a list of
"the counterparties involved in credit default swaps and other transactions in which bailout funds were used to meet A.I.G. obligations."
In other words, where your bailout money went.
More background here.
What's being dealt with here is are transactions to large banks who, as a result of participating in credit default swaps (a type of derivative), are owed a lot of money by AIG. Like probably AIG's entire net worth.
And, AIG can't even go bankrupt and clear these off the sheets because of the fact that derivatives payments cannot be discharged in bankruptcy.
Why pay all of this? Because AIG is a big insurer. A lot of indentures for bonds have them as the insurer. Usually, when the insurer of a bond goes under, the entire bond issue is payable at once.
This means that corporations, municpalities, states and the like who have their bonds guaranteed by AIG would have to pay back all the money owed immediately, rather than over time. So perfectly solvent businesses would collapse.
posted by Ironmouth at 7:31 PM on March 15, 2009 [5 favorites]
And, AIG can't even go bankrupt and clear these off the sheets because of the fact that derivatives payments cannot be discharged in bankruptcy.
Why pay all of this? Because AIG is a big insurer. A lot of indentures for bonds have them as the insurer. Usually, when the insurer of a bond goes under, the entire bond issue is payable at once.
This means that corporations, municpalities, states and the like who have their bonds guaranteed by AIG would have to pay back all the money owed immediately, rather than over time. So perfectly solvent businesses would collapse.
posted by Ironmouth at 7:31 PM on March 15, 2009 [5 favorites]
Interesting to see Rabobank there. They've been rather vocal about them not being caught up in the whole subprime mess, unlike its major Dutch competitors (*cough*Fortis*cough*). ABN Amro was extracted from Fortis/BNP/RBS and nationalised, Fortis was kicked out back to Belgium, and Rabobank snarked about not being in trouble. I guess they weren't entirely truthful and it will be interesting to see how deep they still are in the hole after $0.5B from Uncle Sam.
posted by LanTao at 7:33 PM on March 15, 2009
posted by LanTao at 7:33 PM on March 15, 2009
Is it time to rise up and eat the rich yet? I really need to use up these fava beans.
posted by Dark Messiah at 7:34 PM on March 15, 2009 [2 favorites]
posted by Dark Messiah at 7:34 PM on March 15, 2009 [2 favorites]
2007-11-16: Rabobank subprime exposure minimal: "... is even profiting from the present turmoils."
No points anymore for guessing how they did that.
posted by LanTao at 7:41 PM on March 15, 2009
No points anymore for guessing how they did that.
posted by LanTao at 7:41 PM on March 15, 2009
Is this a good time to mention how glad I am that I am not an American taxpayer like most of you? No? Oh well....
posted by orange swan at 7:44 PM on March 15, 2009
posted by orange swan at 7:44 PM on March 15, 2009
What's being dealt with here is are transactions to large banks who, as a result of participating in credit default swaps (a type of derivative), are owed a lot of money by AIG. Like probably AIG's entire net worth.
AIG's potential CDS liabilities were more like 10 times it's net worth before the crash/bailout. They've paid out far more then their market cap (which is hardly anything at this point), and have had to be backstopped by the government a bunch of times because they didn't have the money to pay (or rather, post collateral) the money they owed.
posted by delmoi at 7:46 PM on March 15, 2009
AIG's potential CDS liabilities were more like 10 times it's net worth before the crash/bailout. They've paid out far more then their market cap (which is hardly anything at this point), and have had to be backstopped by the government a bunch of times because they didn't have the money to pay (or rather, post collateral) the money they owed.
posted by delmoi at 7:46 PM on March 15, 2009
I just wish this list had been released when we were giving them their bailout money. Seems like it would have been nice to know where our money was going up-front rather than after the fact.
posted by HiddenInput at 7:49 PM on March 15, 2009
posted by HiddenInput at 7:49 PM on March 15, 2009
By the way, you guys all realize it was Obama's decision to keep doing this right? Bailing out AIG and keeping Citibank at el on life support rather then nationalizing them. He's asked for another $750 billion in TARP funds in the next budget, in addition the $750 billion in the first bailout, bringing the total up to 1.5 trillion.
I see a lot of outrage about this stuff in these threads but I rarely see any directed at the person who has actually made the decision to keep doing it. (and, by the way, brushed off the criticism from experts like Paul Krugman and Simon Johnson as coming from "the blogs" while misrepresenting what they've said: None of them have argued that all banks should be nationalized, just the few huge ones that are insolvent)
posted by delmoi at 7:54 PM on March 15, 2009 [4 favorites]
I see a lot of outrage about this stuff in these threads but I rarely see any directed at the person who has actually made the decision to keep doing it. (and, by the way, brushed off the criticism from experts like Paul Krugman and Simon Johnson as coming from "the blogs" while misrepresenting what they've said: None of them have argued that all banks should be nationalized, just the few huge ones that are insolvent)
posted by delmoi at 7:54 PM on March 15, 2009 [4 favorites]
Behold AIG: a company known for "creative accounting," currently under criminal investigation, replete with shady dealings, a history of fraud, and a propensity to cook its books. Think you know where all the money's gone? Think again.
posted by ornate insect at 8:03 PM on March 15, 2009 [1 favorite]
posted by ornate insect at 8:03 PM on March 15, 2009 [1 favorite]
Total up how much money went to Goldman Sachs: $2.5 billion directly from AIG + $5.6 from the Maiden Lane III entity created by AIG with Federal Reserve Bank of New York (run at the time by now Secretary of the Treasury Tim Geithner) + $4.8 billion in connection with securities lending operations.
$12.9 billion to Goldman Sachs. More than Societe Generale or anyone else.
Look at the list of some of Goldman's alumni. Of all the banks you hear about throughout this crisis, GS is the one that been in headlines the least. Maybe it's time to change that (though I don't think CNBC is going to be leading that charge).
posted by Pastabagel at 8:06 PM on March 15, 2009 [1 favorite]
$12.9 billion to Goldman Sachs. More than Societe Generale or anyone else.
Look at the list of some of Goldman's alumni. Of all the banks you hear about throughout this crisis, GS is the one that been in headlines the least. Maybe it's time to change that (though I don't think CNBC is going to be leading that charge).
posted by Pastabagel at 8:06 PM on March 15, 2009 [1 favorite]
Where's Mutant when you need him?
posted by christhelongtimelurker at 8:21 PM on March 15, 2009 [2 favorites]
posted by christhelongtimelurker at 8:21 PM on March 15, 2009 [2 favorites]
By the way, you guys all realize it was Obama's decision to keep doing this right? Bailing out AIG and keeping Citibank at el on life support rather then nationalizing them. He's asked for another $750 billion in TARP funds in the next budget, in addition the $750 billion in the first bailout, bringing the total up to 1.5 trillion.
How would nationalizing them be an different than what we are doing now? We would still honor all the debts. It's not like Obama can just tell Deutsche Bank, Societe Generale and the states that they aren't gonna get their money. The banks are holding the economy hostage and there really isn't much Obama can do about it.
posted by afu at 8:21 PM on March 15, 2009 [1 favorite]
How would nationalizing them be an different than what we are doing now? We would still honor all the debts. It's not like Obama can just tell Deutsche Bank, Societe Generale and the states that they aren't gonna get their money. The banks are holding the economy hostage and there really isn't much Obama can do about it.
posted by afu at 8:21 PM on March 15, 2009 [1 favorite]
I wish _I_ got paid for losing money. Never mind the bonus.
delmoi - I don't really get it either. For both Bush and Obama administrations, I suspect the bank and AIG bailouts are all about keeping the lid on things...ie if things can be greased back into running again, we won't ever have to publicly discuss just how fucked they really are at present, so we don't all pull out our remaining savings, buy generators, tinned food and ammo, and huddle in the basement.
$1 to $2T is an awful lot for "shhhh", though. Can't we just ask the world for a do-over?
posted by Artful Codger at 8:24 PM on March 15, 2009
delmoi - I don't really get it either. For both Bush and Obama administrations, I suspect the bank and AIG bailouts are all about keeping the lid on things...ie if things can be greased back into running again, we won't ever have to publicly discuss just how fucked they really are at present, so we don't all pull out our remaining savings, buy generators, tinned food and ammo, and huddle in the basement.
$1 to $2T is an awful lot for "shhhh", though. Can't we just ask the world for a do-over?
posted by Artful Codger at 8:24 PM on March 15, 2009
> Is it time to rise up and eat the rich yet? I really need to use up these fava beans.
Spring is coming, but if we can start cutting and stacking bankers now, they should be nice and dry for next heating season. I hear that when they burn, they smell like Cohibas and Chivas.
posted by Artful Codger at 8:32 PM on March 15, 2009 [1 favorite]
Spring is coming, but if we can start cutting and stacking bankers now, they should be nice and dry for next heating season. I hear that when they burn, they smell like Cohibas and Chivas.
posted by Artful Codger at 8:32 PM on March 15, 2009 [1 favorite]
This still reminds me of The Producers.
posted by louche mustachio at 8:42 PM on March 15, 2009
posted by louche mustachio at 8:42 PM on March 15, 2009
Were these paid because of actual defaults? The creation of the Maiden Lane entities makes me think the TARP implementors are being creative in stretching dollars, but I ran across this in the 3 part series on AIG:
It seems like a lot of money is being paid out just so someone can show it on a balance sheet, not because they need to buy milk (or make payroll, etc.). If it's because of Congressional regulations, Congress can amend those regulations. It does make the house of cards even taller, but spending this much fiat currency is testing the world's faith.
posted by morganw at 8:44 PM on March 15, 2009
Citing the plummeting value of some subprime assets underlying securities that Financial Products had insured, Goldman demanded $1.5 billion to help cover its exposure.Say the contracts require payment when a security's rating or perhaps AIG itself is downgraded or some of the underlying mortgages in a CDO default. Why not tell the counterparties that the contracts aren't actually going to be paid due to theoretical exposure, but the Fed will allow banks to pretend that fucked assets still have value for solvency tests and non-bank counterparties get Fed-backed IOUs that can be called when they actually need the money?
It seems like a lot of money is being paid out just so someone can show it on a balance sheet, not because they need to buy milk (or make payroll, etc.). If it's because of Congressional regulations, Congress can amend those regulations. It does make the house of cards even taller, but spending this much fiat currency is testing the world's faith.
posted by morganw at 8:44 PM on March 15, 2009
In a letter to Geithner dated Saturday, Liddy informed Treasury that outside lawyers had informed the company that AIG had contractual obligations to make the bonus payments and could face lawsuits if it did not do so.Cool story brah.
Liddy said in his letter that "quite frankly, AIG's hands are tied" although he said that in light of the company's current situation he found it "distasteful and difficult" to recommend going forward with the payments.
Liddy said the company had entered into the bonus agreements in early 2008 before AIG got into severe financial straits and was forced to obtain a government bailout last fall.
posted by turgid dahlia at 8:47 PM on March 15, 2009
How would nationalizing them be an different than what we are doing now? We would still honor all the debts. It's not like Obama can just tell Deutsche Bank, Societe Generale and the states that they aren't gonna get their money. The banks are holding the economy hostage and there really isn't much Obama can do about it.
The primary difference would be, well First watch this Simon Johnson interview on Bill Moyer's journal. But the primary difference would be you could fire all the people who actually fucked everything up.
Secondly, you certainly could tell those banks that they aren't getting their money. Why not? Those banks have hardly anything to do with our economy, they're European and they can get bailed out their government or get nationalized by their governments. The U.K has had no problems nationalizing it's banks and I'm not sure why the french or Germans would have any trouble either.
After all, it was the bankers in France and Germany that made deals with AIG without properly evaluating counterparty risk. There is no reason for the U.S. government to bail them out.
If it seems unfair to make the french and Germans pay for mistakes by a U.S. company, first of all keep in mind all this stuff happened in London under (I assume) U.K. law. But even then, it would make more sense for the U.S. government to make payments directly to the french and German governments, rather then have the money 'laundered' through AIG and these other banks that fucked up so that they can take their cut and pay their bonuses along the way.
And the other problem is the moral hazard issue. If bankers fuck up and make an error, then the government comes in and bails them out, then then there's no incentive to behave in a responsible way in the future. Banks will take bigger risk because there is no risk to the individuals making the decisions they keep their jobs, and their bonuses.
And actually AIG pretty much has been nationalized, the U.S. government owns 79% of the stock and the CEO was appointed and reports to Geithner. The problem is the government keeps throwing money down the tubes in order to pay off AIG's counterparties, who didn't do due diligence. And that the government refuses to nationalize Citigroup, despite the fact we've paid them far more then the value of their market capitalization.
posted by delmoi at 9:09 PM on March 15, 2009 [1 favorite]
The only difference between these guys and a bunch of brothers carrying television sets through the broken doors of Shop-Rite on 120th St. in 1965 is that the National Guard can't stop them.
posted by carping demon at 9:12 PM on March 15, 2009
posted by carping demon at 9:12 PM on March 15, 2009
There's just nothing that can be done, is there? No one we can elect, no process that we can try--there isn't anything that isn't going to be in the pocket of these crooks, is there? Some of the luster is gone from my election hopefulness. Well, "some" as in "minimal exposure." Drat.
posted by maxwelton at 9:23 PM on March 15, 2009
posted by maxwelton at 9:23 PM on March 15, 2009
Larry Summers: Stop the AIG Bonuses. Yes You Can.
All that he's saying is that AIG shouldn't get to deduct those bonuses from their taxes, and then in theory the government would get that money back. But what's the point in that? Even if his theory were true, the taxpayer would just have to pump the money right back so that AIG could pay off it's counterparties.
And I don't think it's true at all. If AIG was profitable, even if they did deduct those salaries the deduction would only be a portion of their profits.
And AIG isn't profitable! In fact, they've lost hundreds of billions of dollars! Why would they have any tax burden at all?
The proper way to not pay them is just to straight up not pay them, then let them sue and sit around in court for years waiting for a jury to kick their pathetic asses to the curb. Or have congress change the law to make it legal not to pay the bonuses, or have AIG go through bankruptcy which would allow judges to modify the terms of contracts (in fact, in bankruptcy judges could revoke old bonuses paid to these fucktards)
posted by delmoi at 10:39 PM on March 15, 2009 [2 favorites]
All that he's saying is that AIG shouldn't get to deduct those bonuses from their taxes, and then in theory the government would get that money back. But what's the point in that? Even if his theory were true, the taxpayer would just have to pump the money right back so that AIG could pay off it's counterparties.
And I don't think it's true at all. If AIG was profitable, even if they did deduct those salaries the deduction would only be a portion of their profits.
And AIG isn't profitable! In fact, they've lost hundreds of billions of dollars! Why would they have any tax burden at all?
The proper way to not pay them is just to straight up not pay them, then let them sue and sit around in court for years waiting for a jury to kick their pathetic asses to the curb. Or have congress change the law to make it legal not to pay the bonuses, or have AIG go through bankruptcy which would allow judges to modify the terms of contracts (in fact, in bankruptcy judges could revoke old bonuses paid to these fucktards)
posted by delmoi at 10:39 PM on March 15, 2009 [2 favorites]
Were these paid because of actual defaults? The creation of the Maiden Lane entities makes me think the TARP implementors are being creative in stretching dollars, but I ran across this in the 3 part series on AIG:
These aren't all actual payments, section A lists collateral posted with counterparties. That money at least may be eventually recovered.
That's 22.4 Bn
The 27.1 Bn in Attachment B represents payments to counterparties to buy the underlying security of the CDS, allowing the contract to be closed out.
The 12.1 Bn in attachment C is paid out to US state and municipal authorities that have parked money raised from issuing bonds with AIG until it is needed.
Attachment D covers the 40 Bn that has gone to counterparties in the securities lending operation.
Parts A and B at the very least would not have been a problem if CDSs had been regulated as insurance, because then AIG would have had to maintain capital reserves. Of course, had that been the case they couldn't have written nearly as many CDS contracts in the first place without breaching capital adequacy limits.
posted by atrazine at 10:54 PM on March 15, 2009
These aren't all actual payments, section A lists collateral posted with counterparties. That money at least may be eventually recovered.
That's 22.4 Bn
The 27.1 Bn in Attachment B represents payments to counterparties to buy the underlying security of the CDS, allowing the contract to be closed out.
The 12.1 Bn in attachment C is paid out to US state and municipal authorities that have parked money raised from issuing bonds with AIG until it is needed.
Attachment D covers the 40 Bn that has gone to counterparties in the securities lending operation.
Parts A and B at the very least would not have been a problem if CDSs had been regulated as insurance, because then AIG would have had to maintain capital reserves. Of course, had that been the case they couldn't have written nearly as many CDS contracts in the first place without breaching capital adequacy limits.
posted by atrazine at 10:54 PM on March 15, 2009
And the other problem is the moral hazard issue
I see someone has been breaking the first two rules of Moral Hazard Club.
posted by fullerine at 11:05 PM on March 15, 2009
I see someone has been breaking the first two rules of Moral Hazard Club.
posted by fullerine at 11:05 PM on March 15, 2009
I understand the reasons for bailout as well as the reasons for nationalization.
However I just can't get why the entire fucking financial sector has to be so god damn gung ho for bonuses after they just about fucked the entire economy. Sure a few people will sue and they will subsequently get their names in the paper. Will another bonus, after what I am sure had been many, really make that much of a difference.
And it's not like how it was when the main reason for bonuses was to keep personal in place. The entire sector is hurting right now, so those who have a job are probably pretty happy.
I just don't see how the financial sector thinks this is a good idea. The more they show us how they don't give a shit about spending our money, the stronger the call for strict regulation will be. It seems to me the smart thing to do in this situation is to not throw around money, but then again when was the last time the financial sector did anything smart.
posted by Allan Gordon at 11:37 PM on March 15, 2009
However I just can't get why the entire fucking financial sector has to be so god damn gung ho for bonuses after they just about fucked the entire economy. Sure a few people will sue and they will subsequently get their names in the paper. Will another bonus, after what I am sure had been many, really make that much of a difference.
And it's not like how it was when the main reason for bonuses was to keep personal in place. The entire sector is hurting right now, so those who have a job are probably pretty happy.
I just don't see how the financial sector thinks this is a good idea. The more they show us how they don't give a shit about spending our money, the stronger the call for strict regulation will be. It seems to me the smart thing to do in this situation is to not throw around money, but then again when was the last time the financial sector did anything smart.
posted by Allan Gordon at 11:37 PM on March 15, 2009
Allan Gordon:
Two reasons:
posted by moonbiter at 2:14 AM on March 16, 2009 [1 favorite]
I just don't see how the financial sector thinks this is a good idea.
Two reasons:
- They're dumbfucks. But so are we, because
- it will probably work. They will get their bonuses. And even if they don't, they will not be hurt in any way for trying to loot those last few coins from the treasure chest.
posted by moonbiter at 2:14 AM on March 16, 2009 [1 favorite]
The funniest part is that, if i got this right, you can actually take a Credit Default Swap ("insurance") on credits you're *not* a part to. I could, if i had the money, take a CDS on a transaction between, say, Citi and Société Générale.
A little (hell, say, a lot) like taking an insurance on your neighbor's house. And you, american tax payers, are paying out the bets to the people who gambled succesfully on, say, Lehman Brothers going under.
posted by vivelame at 2:20 AM on March 16, 2009 [1 favorite]
A little (hell, say, a lot) like taking an insurance on your neighbor's house. And you, american tax payers, are paying out the bets to the people who gambled succesfully on, say, Lehman Brothers going under.
posted by vivelame at 2:20 AM on March 16, 2009 [1 favorite]
the National Guard can't stop them.
Could they try?
Maybe if they weren't all occupying other countries.
posted by Kirth Gerson at 3:31 AM on March 16, 2009 [1 favorite]
Could they try?
Maybe if they weren't all occupying other countries.
posted by Kirth Gerson at 3:31 AM on March 16, 2009 [1 favorite]
Note that one of the talking points in defense of the bonuses has been that they are "contractually obligated" to pay these.
Note also that one of the talking points during the bailout of the auto companies was that the UAW contracts were too damaging to the auto companies, and should be renegotiated so the auto workers were paid less.
The lesson is clear: contracts are important and should be honored, except when they are signed with people who are below you on the ladder. Then screw 'em.
posted by Mur at 4:44 AM on March 16, 2009 [12 favorites]
Note also that one of the talking points during the bailout of the auto companies was that the UAW contracts were too damaging to the auto companies, and should be renegotiated so the auto workers were paid less.
The lesson is clear: contracts are important and should be honored, except when they are signed with people who are below you on the ladder. Then screw 'em.
posted by Mur at 4:44 AM on March 16, 2009 [12 favorites]
Parts A and B at the very least would not have been a problem if CDSs had been regulated as insurance, because then AIG would have had to maintain capital reserves. Of course, had that been the case they couldn't have written nearly as many CDS contracts in the first place without breaching capital adequacy limits.
Actually you can pretty confidently say C and D wouldn't have been issues either. The GIC's (C) only required collateral as a result of the credit rating downgrades, as did the securities lending business - and the downgrade only occurred because of the mark-to-market losses on the portfolio of CDS - so its even crazier then it sounds.
The flip side however is that these are just collateral postings - not payments. I don't know about the math but the original thinking on AIG was that they need capital to post collateral, but at the end of the day the losses would be such that their existing capital pre-bailout would be enough to take the losses.
I am however surprised people were not aware that this is where the AIG money was going. Where did you think they owed money? To other banks.
The bonuses are indefensible, but legally what can AIG or the government do? The only thing AIG can do is take an ad out in the NYT, WSJ, Wash Post, and FT that says "These people took guaranteed comp from us"
posted by JPD at 4:57 AM on March 16, 2009
Actually you can pretty confidently say C and D wouldn't have been issues either. The GIC's (C) only required collateral as a result of the credit rating downgrades, as did the securities lending business - and the downgrade only occurred because of the mark-to-market losses on the portfolio of CDS - so its even crazier then it sounds.
The flip side however is that these are just collateral postings - not payments. I don't know about the math but the original thinking on AIG was that they need capital to post collateral, but at the end of the day the losses would be such that their existing capital pre-bailout would be enough to take the losses.
I am however surprised people were not aware that this is where the AIG money was going. Where did you think they owed money? To other banks.
The bonuses are indefensible, but legally what can AIG or the government do? The only thing AIG can do is take an ad out in the NYT, WSJ, Wash Post, and FT that says "These people took guaranteed comp from us"
posted by JPD at 4:57 AM on March 16, 2009
The bonuses are indefensible, but legally what can AIG or the government do?
Let AIG go bankrupt and let the chips fall where they may.
posted by dydecker at 5:07 AM on March 16, 2009
Let AIG go bankrupt and let the chips fall where they may.
posted by dydecker at 5:07 AM on March 16, 2009
Note also that one of the talking points during the bailout of the auto companies was that the UAW contracts were too damaging to the auto companies, and should be renegotiated so the auto workers were paid less.
Listen its a joke the UAW has been a villified as it has over the last ten years - but I think your comparison between the two situations is pretty poor. The UAW could tell the government to get lost (And in some cases they probably should) - a contract is a contract - but the reality is the rank and file don't want to push GM into ch.11 and they want to ensure at least some form of employment for themselves and future generations. So they are willing to do the right thing and deal. Additionally it is in the interest of the UAW leadership to see that GM continues on.
The AIG bonus recipients really don't care if AIG lives or dies, and in fact most of them have assumed its dead - so they just want to get theirs - and because the contracts are not collectively bargained there is no one AIG can sit down with and attempt to renegotiate terms who has an interest in perpetuating the enterprise.
posted by JPD at 5:10 AM on March 16, 2009
Listen its a joke the UAW has been a villified as it has over the last ten years - but I think your comparison between the two situations is pretty poor. The UAW could tell the government to get lost (And in some cases they probably should) - a contract is a contract - but the reality is the rank and file don't want to push GM into ch.11 and they want to ensure at least some form of employment for themselves and future generations. So they are willing to do the right thing and deal. Additionally it is in the interest of the UAW leadership to see that GM continues on.
The AIG bonus recipients really don't care if AIG lives or dies, and in fact most of them have assumed its dead - so they just want to get theirs - and because the contracts are not collectively bargained there is no one AIG can sit down with and attempt to renegotiate terms who has an interest in perpetuating the enterprise.
posted by JPD at 5:10 AM on March 16, 2009
Let AIG go bankrupt and let the chips fall where they may.
Definition of cutting off your nose to spite your face.
posted by JPD at 5:10 AM on March 16, 2009
Definition of cutting off your nose to spite your face.
posted by JPD at 5:10 AM on March 16, 2009
Haha, it's not my face. I would actually sacrifice the very small amount of money I have to lose just to see all of the financial industry get their comeuppance. Human nature, squire.
posted by dydecker at 5:15 AM on March 16, 2009
posted by dydecker at 5:15 AM on March 16, 2009
This means that corporations, municpalities, states and the like who have their bonds guaranteed by AIG would have to pay back all the money owed immediately, rather than over time. So perfectly solvent businesses would collapse.
And state, county and city finances as well?
posted by gimonca at 5:18 AM on March 16, 2009
And state, county and city finances as well?
posted by gimonca at 5:18 AM on March 16, 2009
By the way, you guys all realize it was Obama's decision to keep doing this right?
I do realize that. Where do I apply for my personalized self-flagellation rod?
posted by diogenes at 5:24 AM on March 16, 2009
I do realize that. Where do I apply for my personalized self-flagellation rod?
posted by diogenes at 5:24 AM on March 16, 2009
I kinda hoped that some scheme would be authorized to wipe out the shareholders (can 451$M come from their 20%?) and the true gamblers (hedge funds buying CDSs with no underlying investment to cover) and leave the real policy holders intact. Alas.
posted by a robot made out of meat at 5:31 AM on March 16, 2009
posted by a robot made out of meat at 5:31 AM on March 16, 2009
I kinda hoped that some scheme would be authorized to wipe out the shareholders
AIG shares are like 60¢, up from 35¢ last week for some reason though. The entire market cap (the sum value of every share) is only 1.35 Billion.
posted by delmoi at 5:42 AM on March 16, 2009
AIG shares are like 60¢, up from 35¢ last week for some reason though. The entire market cap (the sum value of every share) is only 1.35 Billion.
posted by delmoi at 5:42 AM on March 16, 2009
Oh and I should have added, they were $22 before the crash, so every shareholder is 98% wiped out. AIG actually did get nationalized.
posted by delmoi at 5:43 AM on March 16, 2009
posted by delmoi at 5:43 AM on March 16, 2009
every shareholder is 98% wiped out. AIG actually did get nationalized.
So if the govt in effect already owns AIG, why don't they formalize it by nationalizing then renege on the bonus contracts?
posted by dydecker at 5:51 AM on March 16, 2009
So if the govt in effect already owns AIG, why don't they formalize it by nationalizing then renege on the bonus contracts?
posted by dydecker at 5:51 AM on March 16, 2009
"Whom", I know you're out there somewhere. Poor lil' neglected interrogative pronoun. Perhaps we could use some of that bailout cash to send a card or a fruit basket to "whom".
If the big 'O' didn't stick with the plan, you realize what that would mean, right? (Link to WaPo commentary "Obama's No Socialist - I Should Know". )
posted by AppleSeed at 6:04 AM on March 16, 2009
If the big 'O' didn't stick with the plan, you realize what that would mean, right? (Link to WaPo commentary "Obama's No Socialist - I Should Know". )
posted by AppleSeed at 6:04 AM on March 16, 2009
So if the govt in effect already owns AIG, why don't they formalize it by nationalizing then renege on the bonus contracts?
You can still sue the government.
posted by JPD at 6:14 AM on March 16, 2009
You can still sue the government.
posted by JPD at 6:14 AM on March 16, 2009
If you knew that ultimately some big banks and financial companies would have to be nationalized so they could be cleaned up, but it was politically unpopular, what would you do? Maybe let these idiots bonus themselves and say, "I wish we could do something, but we don't want to nationalize" until Americans demand nationalization?
I'm not saying that's what they're doing, but I do think stuff like this bolsters the case for actually taking them over.
posted by snofoam at 6:29 AM on March 16, 2009
I'm not saying that's what they're doing, but I do think stuff like this bolsters the case for actually taking them over.
posted by snofoam at 6:29 AM on March 16, 2009
God am I pissed off about this!!!!! Doesn't surprise me at all either. Who in the fuck are they to get paid more money than I'll ever see in my life time for totally fucking up our economy. (note I know it wasn't all AIG fault but still let me rant). Rich get richer off my dime. About 25-30% of everyone that I know is either laid off or doesn't have a job now and are struggling to make ends meet and these assholes have the nerve to dish out bonuses?!?!?! How about they donate the bonuses to charity in the names of the fucking jerk offs that are due to get them? HMMMM? Heavens NO! That would be a decent human being thing to do. OR how about they say we don't want them. The economy and American people are struggling as is. We will not accept them! NO you are not going to see that because these CEO types are the biggest snakes, crooks, slime ball, douche bag people in the whole world. The only reason they got in their current positions is because they are horrible, dishonest, pieces of human filth. Make a list of the CEOs receiving these bonuses and I will go and find out who birthed these jerks and give you a list of women who should have swallowed!!!
posted by Mastercheddaar at 6:56 AM on March 16, 2009
posted by Mastercheddaar at 6:56 AM on March 16, 2009
To all the people pointing out how this is now "Obama's" fault, and that somehow those of us who are angry and frustrated at the bailout are hypocrites: Wrong.
It is perfectly okay to be angry with the thieves and liars that got us into this mess. It is perfectly normal to be angry at the fact you know they have your country by the short hairs. It is perfectly normal to be frustrated at the fact that the scoundrels and crooks who led us here - and I am not talking about the former administration - are going to be personally profiting from the measures we as a nation take to grab desperately at financial stability.
A drowning man will grab for the blade of a sword.
While the thought of allowing the financial industry (aka The Thieves' Guild) to crumble into dust may give us a sense of justice or schadenfreude, most of us realize the consequences of that would be dire. By dire I mean "bombing us back into the financial stone age". Complete collapse of the global financial system.
Imagine every human being on the planet declaring bankruptcy, and everybody stopping payment on all their bills, and all the paper money in the world being worth less than the peper it's printed on, and you begin to get an idea of the potential disaster we are desperately trying to avert.
I know I sound like Chicken Little, but the fact of the matter is that the debt obligations that need to be paid exceed the value of the assets that spawned their creation by a factor as high as twenty times. Imagine that everyone in Los Angeles had earthquake insurance for twenty times the value of their homes - the the "Big One" hits, and now twenty million people come asking the insurance company for their money. They ain't getting it - unless the government steps in and covers it. (Actually that metaphor is pretty much true even if people only covered the value of the homes at 1:1)
It's as if the asshole that led the Donner Party into the mountains got paid extra to lead them back out. We all want out of the mountains, we'll do whatever it takes, and we'll tolerate this jerk profiting from our predicament - but we don't have to like it, and we'll probably stand him up against a wall and give him lead poisoning, once we get back to civilization.
posted by Xoebe at 7:35 AM on March 16, 2009 [1 favorite]
It is perfectly okay to be angry with the thieves and liars that got us into this mess. It is perfectly normal to be angry at the fact you know they have your country by the short hairs. It is perfectly normal to be frustrated at the fact that the scoundrels and crooks who led us here - and I am not talking about the former administration - are going to be personally profiting from the measures we as a nation take to grab desperately at financial stability.
A drowning man will grab for the blade of a sword.
While the thought of allowing the financial industry (aka The Thieves' Guild) to crumble into dust may give us a sense of justice or schadenfreude, most of us realize the consequences of that would be dire. By dire I mean "bombing us back into the financial stone age". Complete collapse of the global financial system.
Imagine every human being on the planet declaring bankruptcy, and everybody stopping payment on all their bills, and all the paper money in the world being worth less than the peper it's printed on, and you begin to get an idea of the potential disaster we are desperately trying to avert.
I know I sound like Chicken Little, but the fact of the matter is that the debt obligations that need to be paid exceed the value of the assets that spawned their creation by a factor as high as twenty times. Imagine that everyone in Los Angeles had earthquake insurance for twenty times the value of their homes - the the "Big One" hits, and now twenty million people come asking the insurance company for their money. They ain't getting it - unless the government steps in and covers it. (Actually that metaphor is pretty much true even if people only covered the value of the homes at 1:1)
It's as if the asshole that led the Donner Party into the mountains got paid extra to lead them back out. We all want out of the mountains, we'll do whatever it takes, and we'll tolerate this jerk profiting from our predicament - but we don't have to like it, and we'll probably stand him up against a wall and give him lead poisoning, once we get back to civilization.
posted by Xoebe at 7:35 AM on March 16, 2009 [1 favorite]
The flip side however is that these are just collateral postings - not payments.
Is the govt. putting real $$ into AIG to hold as collateral? It seems like it could just assume the responsibility to the counterparties and say the Federal Reserve Banks or the US Treasury are your collateral now, bitch.
Congress creates a new form of T-bill & gives that paper, not $$ but obligations, to AIG & at the same time passes a law that amends all the contracts.
What does Constitutional law have to say about contracts? Has a contract case ever made it to the Supreme Court? New distractional research topic 4 me.....
posted by morganw at 8:27 AM on March 16, 2009
Is the govt. putting real $$ into AIG to hold as collateral? It seems like it could just assume the responsibility to the counterparties and say the Federal Reserve Banks or the US Treasury are your collateral now, bitch.
Congress creates a new form of T-bill & gives that paper, not $$ but obligations, to AIG & at the same time passes a law that amends all the contracts.
What does Constitutional law have to say about contracts? Has a contract case ever made it to the Supreme Court? New distractional research topic 4 me.....
posted by morganw at 8:27 AM on March 16, 2009
When my kid gives me a call and says "I'm in trouble, I've run up a gigantic credit card bill!" I'm going to say don't worry son, I've learned how to handle this kind of problem from the government. Don't tell me any of the details, but I'll send you a check for $1000 every month and some day the bill will probably be paid off.
posted by digsrus at 9:20 AM on March 16, 2009 [1 favorite]
posted by digsrus at 9:20 AM on March 16, 2009 [1 favorite]
Obama just said he's going to have Timmy G block the bonus payments FYI
posted by JPD at 9:48 AM on March 16, 2009
posted by JPD at 9:48 AM on March 16, 2009
"And, AIG can't even go bankrupt and clear these off the sheets because of the fact that derivatives payments cannot be discharged in bankruptcy."
That strikes me as a sword that swings both ways -- the US government owns 80% of AIG, and the market cap for the whole company is practically insignificant. At this point it almost seems more worthwhile to buy the remaining 20% of the company, liquidate, and let the government be responsible for the CDSs.
How does that make sense? Effectively the Treasury will pay out for all the CDSs anyway as it's been doing for a few months now under the current system, and it would be hard for anyone to justify still doing business with AIG at this point. It's a ruined brand.
posted by clevershark at 10:03 AM on March 16, 2009
That strikes me as a sword that swings both ways -- the US government owns 80% of AIG, and the market cap for the whole company is practically insignificant. At this point it almost seems more worthwhile to buy the remaining 20% of the company, liquidate, and let the government be responsible for the CDSs.
How does that make sense? Effectively the Treasury will pay out for all the CDSs anyway as it's been doing for a few months now under the current system, and it would be hard for anyone to justify still doing business with AIG at this point. It's a ruined brand.
posted by clevershark at 10:03 AM on March 16, 2009
Yeah, that's what strikes me - the government owns 80% of the company but AIG was refusing to disclose its trading partners, all that. And this "Privacy Obligations" regarding the recipients for the bonuses is crap. I don't know that the info should be broadcast to the torch and pitchfork crowd, but SOMEONE should know - maybe the folks who own 80% of the company?
You shouldn't be able to take money and then just say "fuck you" to the U.S. taxpayer and their elected representatives. Whether we have to do this or not, I don't know, I'm not Joe Economist, so I have to listen to other folks, but whether the U.S. government should have information - no question. There's no excuse for being opaque to the fed.
Lack of accountability and oversight is what got us here in the first place, not the law. Far as I know most of these guys didn't break law one.
We can't target them, but I wouldn't have a problem with folks bringing in over 1/2 a million a year getting taxed at a huge rate. Just point to AIG, et. al. High tax rate? Yeah, well, we're broke, you took all the money, we need it back. That will suck for people like, say, Steven King who just writes books, but it would certainly disincentivize doing this sort of crap. Pretty harsh, but sometimes you should in fact have to nuke the site from orbit just to be sure otherwise you have all kinds of sequels which make no sense.
posted by Smedleyman at 10:26 AM on March 16, 2009 [1 favorite]
You shouldn't be able to take money and then just say "fuck you" to the U.S. taxpayer and their elected representatives. Whether we have to do this or not, I don't know, I'm not Joe Economist, so I have to listen to other folks, but whether the U.S. government should have information - no question. There's no excuse for being opaque to the fed.
Lack of accountability and oversight is what got us here in the first place, not the law. Far as I know most of these guys didn't break law one.
We can't target them, but I wouldn't have a problem with folks bringing in over 1/2 a million a year getting taxed at a huge rate. Just point to AIG, et. al. High tax rate? Yeah, well, we're broke, you took all the money, we need it back. That will suck for people like, say, Steven King who just writes books, but it would certainly disincentivize doing this sort of crap. Pretty harsh, but sometimes you should in fact have to nuke the site from orbit just to be sure otherwise you have all kinds of sequels which make no sense.
posted by Smedleyman at 10:26 AM on March 16, 2009 [1 favorite]
Guess Who Screwed You? It's Worse Than You Think
posted by ornate insect at 12:25 PM on March 16, 2009
posted by ornate insect at 12:25 PM on March 16, 2009
Geithner's plan [TALF] to invite private equity and hedge fund investors to a fire sale of bank assets is a return to the very same policies and practices that triggered the financial crisis in the first place.
posted by ornate insect at 3:49 PM on March 16, 2009
posted by ornate insect at 3:49 PM on March 16, 2009
Letter from Liddy to Geithner
posted by never used baby shoes at 4:16 PM on March 16, 2009 [1 favorite]
posted by never used baby shoes at 4:16 PM on March 16, 2009 [1 favorite]
To all the people pointing out how this is now "Obama's" fault, and that somehow those of us who are angry and frustrated at the bailout are hypocrites: Wrong. correct
Fixed that for you.
Seriously, the rest of your post doesn't even try to refute the point that Obama isn't doing things that were successful in Sweden and (after several years of waiting around hoping things would get better) Japan. Nationalizing the banks wouldn't prevent anyone from paying their bills, which you claim would cause money to be worth less then the paper it was printed on. None of the crazy nonsense you spouted would actually occur just because the banking system was nationalized, in fact AIG actually was nationalized, because it had problems before TARP was even a glimmer in Paulson's eye. Several banks were also nationalized by the FDIC, including IndyMac and Freddy and Fanny were (re-) nationalized as well.
posted by delmoi at 4:43 PM on March 16, 2009
Fixed that for you.
Seriously, the rest of your post doesn't even try to refute the point that Obama isn't doing things that were successful in Sweden and (after several years of waiting around hoping things would get better) Japan. Nationalizing the banks wouldn't prevent anyone from paying their bills, which you claim would cause money to be worth less then the paper it was printed on. None of the crazy nonsense you spouted would actually occur just because the banking system was nationalized, in fact AIG actually was nationalized, because it had problems before TARP was even a glimmer in Paulson's eye. Several banks were also nationalized by the FDIC, including IndyMac and Freddy and Fanny were (re-) nationalized as well.
posted by delmoi at 4:43 PM on March 16, 2009
Question: Why is hedge-master Joseph Cassano, the guy who ran AIGFP in London (ground zero in the financial bubble) not in jail?
His CDS chop-shop, which blew half a trillion dollars, and which he ran with his Brooklyn buddies (Capetta appears to have been "retired" for fraud), was almost certainly cooking its books.
posted by ornate insect at 4:59 PM on March 16, 2009
His CDS chop-shop, which blew half a trillion dollars, and which he ran with his Brooklyn buddies (Capetta appears to have been "retired" for fraud), was almost certainly cooking its books.
posted by ornate insect at 4:59 PM on March 16, 2009
Despite Cuomo's subpoenas, AIG is not releasing its bonus information.
posted by ornate insect at 5:05 PM on March 16, 2009
posted by ornate insect at 5:05 PM on March 16, 2009
Interesting to see Rabobank there. They've been rather vocal about them not being caught up in the whole subprime mess, unlike its major Dutch competitors
Rabobank is getting the money because they are owed on the CDS's. They are the counterparty. In other words they made an excellent bet--that the value of the underlying mortgage-backed securities would go down.
posted by Ironmouth at 8:26 PM on March 16, 2009
Rabobank is getting the money because they are owed on the CDS's. They are the counterparty. In other words they made an excellent bet--that the value of the underlying mortgage-backed securities would go down.
posted by Ironmouth at 8:26 PM on March 16, 2009
The question is simple--will AIG going down cost more than keeping AIG afloat? The anwser is it costs more for them to go down because of the collateral effects of what happens. AIG is tied to a lot of other businesses which would be severly affected. The effects on the credit markets would be real bad. Two areas where this might occur is bond indentures and other bank stocks. Both would make the credit crisis far worse.
When a bond is issued, there is insurance issued as well, a guarantor agrees to pay if the issuer can't. Problem is the agreements say that if the insurer goes, the whole note is payable on demand. WAMATA, the DC transit system is currently suing to avoid being bankrupted because the guarantor bank went down. WAMATA has been servicing the debt timely. But the note is being called in anyway.
AIG is the world's leading insurer of bonds and a lot of other instruments as well. So AIG going down sinks a lot of other ships its tied too. More importantly, if lenders see guarantors going down, they are not going to get involved in the credit market at all. Nobody at all will lend.
Also, AIG going down would drive financial stocks down to the point where they would fail. People would fucking panic.
Hence the Good Bank/Bad Bank plan, put the insurance side in its own part and the crap liabilities in another. In essence, you'd deny the AIG counter-parties their payday. But their loss is our gain.
Either paying or denying payment to these counterparties is really the only decision here. I suspect that the Administration will mix and match, depending on the situation. AIG is a special case and they are going to play it safe and pay them off. Others will get good bank/Bad Bank treatment.
One thing is for sure, they aint gonna let guarantors have huge finance arms which could drag down the insurance side anymore.
posted by Ironmouth at 8:53 PM on March 16, 2009
When a bond is issued, there is insurance issued as well, a guarantor agrees to pay if the issuer can't. Problem is the agreements say that if the insurer goes, the whole note is payable on demand. WAMATA, the DC transit system is currently suing to avoid being bankrupted because the guarantor bank went down. WAMATA has been servicing the debt timely. But the note is being called in anyway.
AIG is the world's leading insurer of bonds and a lot of other instruments as well. So AIG going down sinks a lot of other ships its tied too. More importantly, if lenders see guarantors going down, they are not going to get involved in the credit market at all. Nobody at all will lend.
Also, AIG going down would drive financial stocks down to the point where they would fail. People would fucking panic.
Hence the Good Bank/Bad Bank plan, put the insurance side in its own part and the crap liabilities in another. In essence, you'd deny the AIG counter-parties their payday. But their loss is our gain.
Either paying or denying payment to these counterparties is really the only decision here. I suspect that the Administration will mix and match, depending on the situation. AIG is a special case and they are going to play it safe and pay them off. Others will get good bank/Bad Bank treatment.
One thing is for sure, they aint gonna let guarantors have huge finance arms which could drag down the insurance side anymore.
posted by Ironmouth at 8:53 PM on March 16, 2009
AIGFP needs to be separated from its...parent and put into temporary government receivership.
posted by ornate insect at 9:52 PM on March 16, 2009
posted by ornate insect at 9:52 PM on March 16, 2009
Anyone else notice that AIG's stock tripped in the past few days? I think it may be because the government owns 79%, and if they own any more they might have to be responsible for AIGs (potentially enormous) debt. Am I correct there? It seemed strange.
posted by delmoi at 8:38 AM on March 17, 2009
posted by delmoi at 8:38 AM on March 17, 2009
It's pointless to muster outrage that this is how the funds are being spent. The whole point of the AIG bailout was so they could pay these obligations. If AIG was simply broke, they could have been left to fail.
The recipients named may not be the eventual recipient of the payout. A lot of companies would sell a CDS and then buy a matching one to cover the risk. So the payout to Goldman Sachs may end up going to Citibank, then Bank of America, then some hedge fund then some dumb pension fund that didn't know what they were buying. Backing AIG prevents huge chains of defaults. I don't think anyone knows the whole picture of the chain of CDS obligations, but it's huge and many multiples times the amount we're giving them.
posted by jefftang at 1:52 PM on March 17, 2009
The recipients named may not be the eventual recipient of the payout. A lot of companies would sell a CDS and then buy a matching one to cover the risk. So the payout to Goldman Sachs may end up going to Citibank, then Bank of America, then some hedge fund then some dumb pension fund that didn't know what they were buying. Backing AIG prevents huge chains of defaults. I don't think anyone knows the whole picture of the chain of CDS obligations, but it's huge and many multiples times the amount we're giving them.
posted by jefftang at 1:52 PM on March 17, 2009
When a bond is issued, there is insurance issued as well, a guarantor agrees to pay if the issuer can't. Problem is the agreements say that if the insurer goes, the whole note is payable on demand.
WTF? Given the current circumstances, can't the government legislate a temporary suspension of that rule, when there's no real risk? Or can't the financial community agree to a mutual suspension? Despite the insurer failing, if the bond debt is not in default and is being properly serviced (eg the WAMATA situation) then there's no real problem with the bond, right? No harm no foul.
I would have a big problem if a substantial amount of bailout money was going to satisfy completely arbitrary contractual issues like those, instead of more fundamental business survival issues.
posted by Artful Codger at 2:44 PM on March 17, 2009
WTF? Given the current circumstances, can't the government legislate a temporary suspension of that rule, when there's no real risk? Or can't the financial community agree to a mutual suspension? Despite the insurer failing, if the bond debt is not in default and is being properly serviced (eg the WAMATA situation) then there's no real problem with the bond, right? No harm no foul.
I would have a big problem if a substantial amount of bailout money was going to satisfy completely arbitrary contractual issues like those, instead of more fundamental business survival issues.
posted by Artful Codger at 2:44 PM on March 17, 2009
Perp Walks Instead of Bonuses
Robert Scheer on AIG Bonuses, the “Backdoor Bailout” and Why Obama Should Fire Geithner, Summers
posted by homunculus at 9:47 AM on March 19, 2009
Robert Scheer on AIG Bonuses, the “Backdoor Bailout” and Why Obama Should Fire Geithner, Summers
posted by homunculus at 9:47 AM on March 19, 2009
And just when you thought it couldn't get any worse: AIG sues Government for $306 Million in Tax Payments.
posted by marsha56 at 9:11 PM on March 19, 2009
posted by marsha56 at 9:11 PM on March 19, 2009
The Big Takeover: The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution
posted by homunculus at 9:43 PM on March 19, 2009
posted by homunculus at 9:43 PM on March 19, 2009
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