House AIG Hearing

AIG CEO Edward Liddy is appearing this morning before a House Banking subcommittee. CNN has a live feed.

Here is Liddy's op ed in today's Washington Post. Here is the part of it that really bothered me:

Although we have wound down more than $1 trillion in the portfolio of the AIG Financial Products unit that is at the root of the company's troubles, there remains substantial risk in that portfolio. The financial downside for taxpayers is potentially very large, and that's why we're winding down this business.

(Emphasis supplied.) "Taxpayers" could walk away from AIG right now and avoid any further direct "downside." The government bailout is not premised on the idea that "taxpayers" needed to protect their "investment" in AIG. AIG has become nothing more than a "backdoor bailout" for other financial institutions. This is unacceptable. That is what I would ask Liddy about.

Speaking for me only

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    I might be comforted some (5.00 / 1) (#3)
    by Militarytracy on Wed Mar 18, 2009 at 09:46:36 AM EST
    believing that AIG was THE backdoor bailout and it was only going to cost us a trillion.  The ultra super sad reality about the Sh!tp*le though is that its pricetag is larger than the GNP of the whole frickin globe.  As my grandfather would have put it, someone just needs their a$$ beat.  It is like standing before a massacre in stunned shock trying to figure out what the heck to tend to first and all this slaughter is laying on top of mass graves.

    Triage (none / 0) (#10)
    by gyrfalcon on Wed Mar 18, 2009 at 10:25:27 AM EST
    Triage strikes me as exactly what they're trying to do.  I'm not entirely clear on why that's the wrong thing.

    Considering that the CDS (5.00 / 3) (#14)
    by Militarytracy on Wed Mar 18, 2009 at 10:42:22 AM EST
    market is largely undisclosed, a BIG FAT HIDDEN SECRET, I'm not sure you can call this triage.  When delivering triage, putting your own life and health at risk is counter productive to the whole meaning of triage.  If you having to help so much it is going to end up killing you you aren't delivering triage.  If you are focusing your time and energies on a doomed patient who is bleeding out and ignoring the one that isn't bleeding out and has a chance, you are not delivering triage.  Because CDS gets to be hidden out though nobody knows how much blood loss there is going to be.  Sooooo, I'm not entirely clear on why this is the right thing either.  That's the problem, without transparency........who can be entirely clear about anything?

    Well said Tracy... (5.00 / 2) (#17)
    by kdog on Wed Mar 18, 2009 at 10:52:59 AM EST
    good triage analogy.

    One thing we can be certain of...the door to the treasury is wide open and money is just flying out the door.  Our money, our kids money, our great-great-great grandkids money...shouldn't we at least know what the f*ck we're buying outside of some half-arse threat that if we don't cough it up we're all eating out of dumpsters?


    Well said (5.00 / 1) (#19)
    by gyrfalcon on Wed Mar 18, 2009 at 10:59:42 AM EST
    But I'm not sure who's putting their life and health at risk here.  Letting AIG go into bankruptcy would be just as you say, putting the nation's life and health at risk.  (See the excerpts from the NYT posted below for some info about what they're doing.)

    As for transparency, you're entirely right.  Someone in their mid-60s remarked to me the other day that in their entire life, they'd never seen a situation anywhere near comparable to this, where there's been such a huge and critical national issue that even the most well-informed and savvy citizens can't find out more than the most superficial information about what's going on and what's being done about it.

    Part of that is clearly the whole issue of "confidence."  The whole financial system runs on it, and is way too easily panicked.  Nothing more than rumor brought down Bear Stearns.

    But part of it is also clearly Mr. Transparency's apparent belief, as stated by his aides, that the public "isn't interested in the specifics" of this stuff.  I think that's terribly, perhaps disastrously wrong.  We're being asked instead just to trust them.  That's not as hard as it was with the Bush cabal, but it's nowhere near enough, either.



    You assert (5.00 / 2) (#25)
    by Big Tent Democrat on Wed Mar 18, 2009 at 11:07:01 AM EST
    that "Letting AIG go into bankruptcy would be just as you say, putting the nation's life and health at risk" but you do not weigh other possibilities - i.e. - putting pressure on counterparties to take substantial haircuts and share the sacrifice.

    But I'll go you one better - we not nationalize AIG and sit down and bargain with all the stakeholders? Why are we just shoveling money to them?


    Don't know (none / 0) (#32)
    by gyrfalcon on Wed Mar 18, 2009 at 11:29:55 AM EST
    What you suggest seems like such an obviously good idea to me that I assume there's something we haven't thought of that's keeping them from doing it.  I'd like to know what that would be, but they're not telling us.  Without hearing both arguments, I can't even begin to make a judgment on it.  (As a basic premise, I simply don't buy that the problem is either timidity or cupidity.)

    It may be poor judgment, but I don't think we'll know that until the dust clears some years from now.  And even then, we'll probably be having arguments about the road not taken for decades.

    On the one hand, we have a bunch of very smart, very knowledgeable, very competent people who have a hell of a lot more information than we do beavering away trying to fix things.  On the other hand, there's you and me and a whole lot of other people on the outside with only bits and pieces of information and no basic competence in ins and outs of the financial system running around and waving our arms.

    We're all stumbling around a dark room here and bumping into stuff we can't see clearly.  As somebody in a thread a while ago said, we're like the blind men trying to describe an elephant.


    Haven't we nationalized AIG already? (none / 0) (#37)
    by santarita on Wed Mar 18, 2009 at 11:45:27 AM EST
    We own a controlling interest.  The CEO was replaced.  

    We are not exercising our control very well.  


    We have not taken over AIG (none / 0) (#39)
    by Big Tent Democrat on Wed Mar 18, 2009 at 11:49:59 AM EST
    There is something being repeated (5.00 / 2) (#30)
    by Militarytracy on Wed Mar 18, 2009 at 11:29:09 AM EST
    all over the place lately that is only a half truth at best, and I noticed it in what you replied to me as well.

    Part of that is clearly the whole issue of "confidence."  The whole financial system runs on it, and is way too easily panicked.

    This notion that the whole system runs on confidence is crap.  There are many sectors of the financial system that are backed up with actual substance and once upon a time that sort of financial system used to be the norm. That substance is where market confidence is actually derived from.  You have bought into this newagey complex investment vehicle B.S......a climate in which a derivative becomes a commodity and then that commodity creates more derivatives and day trading is a job title.  A healthy economy, market, and financial system is backed by substance......not thinking happy thoughts and "created" activity.


    See Bear Stearns (none / 0) (#33)
    by gyrfalcon on Wed Mar 18, 2009 at 11:30:38 AM EST
    if you want to keep believing confidence has nothing to do with it.

    I saw Bear Stearns (5.00 / 1) (#34)
    by Militarytracy on Wed Mar 18, 2009 at 11:35:22 AM EST
    and when the majority of the substance holding the house of cards together is happy thoughts what do you think is going to happen?  There is no mystery there, and all the while this happy thoughts concept of how it all "really" works is what has allowed the fatcats to bleed our markets dry of all the real substance they had and ripoff the 401k.

    I think you just (none / 0) (#47)
    by gyrfalcon on Wed Mar 18, 2009 at 12:06:20 PM EST
    made my point, actually.

    Oh, I thought your point (5.00 / 1) (#48)
    by Militarytracy on Wed Mar 18, 2009 at 12:08:26 PM EST
    was that you wanted to continue growing this substanceless mindless money draining "happy thoughts" economic system.

    MT, the bank (none / 0) (#53)
    by gyrfalcon on Wed Mar 18, 2009 at 12:27:54 PM EST
    loans you money to start a business or gives you a credit card based on confidence you'll be able to pay back the money it loaned you.  That confidence usually isn't based on collateral you possess but on your ongoing earnings, or cash flow. If it loses confidence in your ability to do that, it yanks your credit card or calls your loan.  

    We had a rather gruesome recent example of that when it turned out American Express was reducing the credit lines or outright canceling cards of people who were doing "too much" shopping at Wal-Mart and TJMaxx and discount retailers, thus possibly indicating they were in financial trouble of some kind.

    Same thing applies institution to institution.  Even before they all went nuts and turned themselves into giant hedge funds, the system relied on such "happy thoughts."

    The problem here is that the sheer volume of happy thought-based transactions exploded, and that the core happy thought was that the housing market would keep going up forever.

    But "happy thoughts" per se have always been and always will be what makes the world go 'round financially and economically.


    I think this is where we can meet up (none / 0) (#56)
    by Militarytracy on Thu Mar 19, 2009 at 09:47:53 AM EST
    in a way, substance does provide happiness and happy thoughts and if the substance isn't doing that then the creator of that substance either takes a dive or must modify the product so that it creates well being for humanity, or stability for humanity, and/or thereby generates happiness. But this notion that if we all just think happy thoughts everything will be fine is a lie.

    Because (5.00 / 3) (#18)
    by MyLeftMind on Wed Mar 18, 2009 at 10:53:51 AM EST
    we have no idea if triage is happening.  We handed them money with no strings and no accounting.  We have no control and no information about what they're using it for until after the fact.  

    From the looks of things, our tax money is being used to take care of the very people who should be ignored - management.  Triage would be helping the people in the middle, ignoring the top and bottom tiers.  To my mind, that means bailing out homeowners to stabilize the real estate market with 3-4%, 45 year government owned loans, letting those who can't afford restructured lose their homes.  Banks and companies like AIG are freed up as their toxic assets are sold, and the government recoups the payback in the long run.

    Instead, we're giving them money to spend on their upper tier, they get to come back for more, and if this plan somehow helps the economy recover, they reap the benefits at the end as well because they still own the loans and real estate.

    That's not triage, it's a travesty.


    Spot on. This is massive transfusion (5.00 / 2) (#41)
    by Cream City on Wed Mar 18, 2009 at 11:57:35 AM EST
    before the triage decisions are made.

    We are pouring our lifeblood into what could be a corpse, while ignoring sectors of the economy that could keep people in jobs and houses -- and all those sectors may need is a couple of aspirin.


    Ignoring? (none / 0) (#49)
    by gyrfalcon on Wed Mar 18, 2009 at 12:09:23 PM EST
    C'mon, Cream.

    And one more time, the financial system is not the economy.  Financial system bail-outs, loans, etc., are not aimed at stimulating the economy.  They're aimed at keeping the financial system functioning, without which we will have no economy.


    Yes we do (5.00 / 2) (#50)
    by MyLeftMind on Wed Mar 18, 2009 at 12:14:03 PM EST
    Our government is perfectly capable of being a bank.  Instead we're giving money to banks and AIG hoping they won't just take our money and leave when it all falls apart.

    We might be just temporarily propping up a system that will fail soon anyway.


    Exactly -- (none / 0) (#54)
    by Cream City on Wed Mar 18, 2009 at 09:47:43 PM EST
    pouring our lifeblood, then, into the financial system and thinking that will turn around the economy . . . when there is much more to the economy, to the sectors that create jobs, etc.

    C'mon yourself.  Sorry I didn't give you three paragraphs.


    I Have to Believe ... (none / 0) (#22)
    by gtesta on Wed Mar 18, 2009 at 11:03:58 AM EST
    that really the only reason for a taxpayer-funded bailout of AIG is so that there can be an orderly and well-managed dismantling of the company.  There should be parts of AIG that are valuable and can be sold for much higher than firesale prices.  This is how we recoup some of the $170B and counting of our money.
    I hope to hell we get some details of how the liquidation is proceeding and not blather about bonus payments.
    Honestly, if the breakup is not proceeding, then I really have no idea whatsover of why this bailout is continuing.

    How the heck are they (5.00 / 3) (#4)
    by gtesta on Wed Mar 18, 2009 at 09:52:11 AM EST
    How the heck are they valuing the insurance claims?  I thought that no one knew how to value the so-called "toxic assets".  Why the hell are we (as 80% owners of AIG) being asked to pay out 100% value of the claims?!
    If the financial positions taken by financial institutions were irresponsible and possibly criminal, why should these claims be honored?

    I think the reasoning is... (5.00 / 2) (#6)
    by kdog on Wed Mar 18, 2009 at 09:57:41 AM EST
    if we don't honor the commitments of crooks and reward them for their crookedness we all starve or something...personally I ain't buying it.

    Working people don't eat because of AIG, they eat in spite of AIG.


    Yep. No wonder why (none / 0) (#9)
    by gtesta on Wed Mar 18, 2009 at 10:16:43 AM EST
    paulson got down on one knee and begged for TARP and then gave the largest slice to AIG.  This is where the real action is for these banksters.  I'd like to total my car, collect the insurance for it, and then still get a bailout to buy a new car.

    The latest report (5.00 / 1) (#12)
    by standingup on Wed Mar 18, 2009 at 10:33:10 AM EST
    on progress was published in the Financial Times last week:

    Nick Ashooh, AIG spokesman, said the group has made headway in its attempts to reduce its exposure to credit default swaps and other derivatives. The notional value of its derivatives exposure has dropped to about $1,600bn from about $2,700bn a year ago, and its CDS exposure has been cut from $433bn to $302bn.

    And more from the NYT:

    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.

    So at least $62 billion is officially off AIG's book because the government bought the underlying assets.  

    The same NYT article also provides another bit of information in just how long the process of "winding down" can take:

    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."

    the money that people have in Life and annuities (5.00 / 1) (#13)
    by TeresaInPa on Wed Mar 18, 2009 at 10:42:11 AM EST
    is there no matter what...in one of Gore's lock boxes.  The rest of their insurance types can be transferred to other companies.  
    Let em fall

    I just had this image of you (none / 0) (#16)
    by Militarytracy on Wed Mar 18, 2009 at 10:47:47 AM EST
    dressed as a Girly Viking, a helmet with horns and furry tails hanging off your skirt, suede knee boots and you were holding a spear and a sheild :)

    Xena, the Warrior Princess (none / 0) (#28)
    by oculus on Wed Mar 18, 2009 at 11:13:44 AM EST
    I love that (none / 0) (#57)
    by TeresaInPa on Tue Mar 31, 2009 at 01:03:51 PM EST
    thank you, sometimes I feel that way.  I didn't used to believe in tough love and pragmatism.  The right seemed crazy to me.  The older I get and see people and companies which abuse the system the more I think a little benign neglect, in certain cases, might be a good idea.

    Barney Frank Made An Excellent ... (5.00 / 2) (#29)
    by santarita on Wed Mar 18, 2009 at 11:22:40 AM EST
    distinction.  He talked about abrogating the bonus contracts not as the government in its government role but as the government in its role as controlling stockholder.

    The discussion about "sanctity of contracts" is really about preserving the integrity of contracts from arbitrary and capricious government intervention.

    But where we are right now is a situation so sui generis that the argument about preserving the sanctity of contracts is almost ridiculous.

    Could we start? (5.00 / 4) (#35)
    by jbindc on Wed Mar 18, 2009 at 11:35:28 AM EST
    Could we start with the politicians who accepted campaign contributions from AIG and its executives?  Could they give that money back to AIG, or better yet (as this report suggests) directly to the Treasury?  It's a drop in the bucket compared to all they got, but it would look good for PR purposes.

    AIG executives gave more than $630,000 during the 2008 political cycle even as the company was falling apart

    According to the Center for Responsive Politics, which tracks campaign finance reports, more than $120,000 of that money was donated after AIG received its first $85 billion in federal bailout funds in September. The company has since received a total of $170 billion in taxpayer cash to prevent its collapse.

    No, that won't happen because (none / 0) (#55)
    by Cream City on Wed Mar 18, 2009 at 09:48:57 PM EST
    Obama took $100,000 from AIG.  I saw him explaining it, and he would be the one to go first in returning such funds.

    We do not have control over (5.00 / 1) (#51)
    by MyLeftMind on Wed Mar 18, 2009 at 12:14:47 PM EST
    our government.  The people who are making these no-strings attached bailout decisions are not beholden to us except to the extent that we can vote them out of office somewhere down the line.  We have no assurance their actions will work, never mind work in our favor.  It's like expecting Congress to fix Social Security when they don't have to depend on it for retirement.  Democrats steal SSA money to use for general fund expenditures (see FDR's original design & commitments in the 1940s, then Eisenhower, Johnson, Clinton & Gore's subsequent changes to those promises).  Rethugs tried to steal it by changing it to an investment system for the benefit of their political cronies.  Both parties are heavily lobbied to make decisions favorable to the super rich, which results in the redistribution of wealth from the middle class.  That's a given.  The question is, can we exert enough pressure on Congress and the Prez to avert a crisis that destroys our fledgling democracy?  

    We have no assurance that these bailouts will do more than delay a massive economic crisis.  Clearly, letting banksters and kleptocrats (tx Lambert) profit instead of using the money to fix the problems just exacerbates the situation.  Even if these bailouts prevent economic disaster, if the super rich make obscene profits by destroying the rest of us, our long term stability is still at risk.  The worse case scenario is complete economic collapse, in which case voting for different leaders is no longer an option.  The people with the money will have complete control over our government and the rest of us will be competing for jobs with third world countries.  In fact, that very well might be the intention of the people pulling the strings.  Maybe they've had enough of unions, health care expectations, minimum pay, environmental and workplace safety constraints, social security safety nets, child labor laws, and all those other pesky rules that support a healthy middle class.

    I like how Chief Executive Arsehole... (none / 0) (#1)
    by kdog on Wed Mar 18, 2009 at 09:19:18 AM EST
    said "In America, you pay what you owe" in regards to the bonuses.  Yeah genius, provided you have the money to pay what you owe...when you go bust-o all bets are off.

    Liddy gone flipped his lid...must be the stress of keeping the golden goose alive through artificial means.

    "Mistakes were made at AIG," (5.00 / 1) (#5)
    by oculus on Wed Mar 18, 2009 at 09:54:04 AM EST
    . . .  Oh, and BTW, they weren't made on my watch.  

    You can guarantee (none / 0) (#2)
    by AlkalineDave on Wed Mar 18, 2009 at 09:40:47 AM EST
    the Goldman Sachs question has to come up.

    I cannot fathom why (none / 0) (#7)
    by Wile ECoyote on Wed Mar 18, 2009 at 10:08:38 AM EST
    anyone still wants to use taxpayer money to bail out AIG ("temporary" nationalization or not).  

    Seems to me too big to be allowed to fail is more irrelevant every day.

    "Wound down?" (none / 0) (#8)
    by MyLeftMind on Wed Mar 18, 2009 at 10:15:51 AM EST
    Did he get rid of them or not?  Are they still liabilities, or are they paid off or gone?

    Something tells me he's going to clarify later on that he never said they were off the books.  Otherwise, why use such evasive, colorful language?

    "Direct" (none / 0) (#11)
    by gyrfalcon on Wed Mar 18, 2009 at 10:28:26 AM EST
    being the key word in your statement "Taxpayers could walk away from AIG right now and avoid any further direct downside."

    Indirect exposure (5.00 / 2) (#15)
    by Big Tent Democrat on Wed Mar 18, 2009 at 10:46:37 AM EST
    is rather undefined in this situation. Would it be more if we let AIG go? Do you know? No one is making a good case about it.

    How about a post on (5.00 / 1) (#20)
    by oculus on Wed Mar 18, 2009 at 11:01:45 AM EST
    counterparties?  How is this term defined for purposes of AIG.  Is a counterparty an investor in AIG or an insured of AIG.  Why are counterparties being pd. off by AIG at this time?  Must a counterparty make a claim with AIG first?  So confusing.

    oculus, I have to say that sometimes - (5.00 / 1) (#40)
    by Anne on Wed Mar 18, 2009 at 11:53:07 AM EST
    maybe most of the time, lately - when I am listening to testimony or talk about the elements of this whole mess, I think I would really like a United Nations-type translator telling me what the heck it all means; I'd be happy to put my earbuds in, plug into the Financial Translation Channel and finally get a grasp on things.

    I feel the same way when I hear native French speakers and realize that, no, the years of the language I had in high school and college aren't enough to allow me to understand a whole lot of what is being said - unless it is said slowly, very slowly, lol.


    You would enjoy the film (none / 0) (#45)
    by oculus on Wed Mar 18, 2009 at 12:00:26 PM EST
    "The Class."  Thanks for admitting you too are confused!

    An "insured" (none / 0) (#23)
    by Big Tent Democrat on Wed Mar 18, 2009 at 11:04:39 AM EST
    in the CDS and CDO markets.

    I am like, 4 posts behind on promised legal issues (preemption and others.)

    The short version is a counterparty to AIG is someone who took the other side of AIG on a credit default swap.


    Credit Default Swaps In Their ... (none / 0) (#44)
    by santarita on Wed Mar 18, 2009 at 11:59:43 AM EST
    simplest form involve a protection buyer and a protection seller.  The protection buyer is usually a creditor of a company (eg. GM).  The protection buyer may hold promissory notes or bonds (in essence a promise to pay) of the GM.  The protection seller agrees to pay the holder of the notes or bonds if GM defaults.  The protection buyer pays the protection seller for this insurance.  The amount paid is usually some percentage of the interest rate on the note or bond.  So as long as there is no default by the company, the protection seller makes money.  The protection buyer still makes money but less the premium paid.  

    The closer GM is to filing bankruptcy (and thereby stiffing the bondhoders or noteholders), the more valuable that CDS looks.  Of course, if the protection seller is AIG, the protection buyer starts getting nervous.  And pursuant to the terms of the swap, the protection buyer may have the right to require collateral from AIG or even the right to require AIG to pay off on the CDS.

    The above gets more complicated when the CDS gets traded.


    If the financial system (none / 0) (#26)
    by gyrfalcon on Wed Mar 18, 2009 at 11:08:11 AM EST
    collapses, wouldn't you say that would be more?  Many, many people have been making that case quite convincingly for some time now.  And everybody from Krugman on down is emphatic that without at least a semi-healthy financial system, no amount of direct stimulus will get the economy working again.

    Will the financial system collapse (5.00 / 2) (#27)
    by Big Tent Democrat on Wed Mar 18, 2009 at 11:10:52 AM EST
    is Goldman gets 50% of its counterparty money? Why?

    Negotiating what the insured (5.00 / 1) (#42)
    by Militarytracy on Wed Mar 18, 2009 at 11:58:58 AM EST
    are going to get.  That would put Goldman in the same category as say a Katrina victim.

    Convincing to you (5.00 / 3) (#43)
    by Cream City on Wed Mar 18, 2009 at 11:59:13 AM EST
    but clearly not to a lot of us is not "quite convincing."  

    I am convinced when given information that enables me to make a decision.


    Uh Oh :) (none / 0) (#21)
    by Militarytracy on Wed Mar 18, 2009 at 11:02:47 AM EST
    We got us some Code Pink with signs reading AIG and JAIL.  That Code Pink :)  Boring girls....NOT :)

    the theory (none / 0) (#24)
    by Bemused on Wed Mar 18, 2009 at 11:04:51 AM EST
    (which I do not entirely buy) gets lost in all the double-talk and gobbledy-gook.

      Essentially all aspects of the crisis begin with some entity purchasing risk based on the assumption it can make money. But, that entity doesn't want to carry the risk so it sells the paper at a discount but for enough to take a profit. then the buyers of these risks engage in bundling the risks into collateralized securities, then they sell the bundled risks, also at a discount but for a profit to still another entity (which may well do the same thing). Then whether you  call them insurers, reinsurers or guarantors still other entities, for a fee, guarantee the holders of the paper against loss from the risks. these entities are supposed to know what they are doing and have sufficient capital reserves to meet any obligations.

       When the houses of cards collapse and the capital reserves are far short of the losses incurred from all the risks, we are where we are. AIG says it cannot meet its obligations. Many of the entities to which AIG has obligations have their own obligation to entities futher down the line. AIG also has other obligation to other entities not directly invested in the risks which have broght about this crisis.

      So, we are told if we don't give AIG money to satisfy its obligations in a somewhat reasonable time frame not only will that cause AIG to fail but other intermediate entities in these risk  chains will fail eventually all the way down to your local community bank, and entities not even in these will possibly fail if their unrelated claims against AIG cannot be met.

      So, we are told our only option is to give AIG billions and billions which does of course go to the entities to which AIG has obligations (except stuff like money used for huge bonuses and other operating expenses. We're not getting many of the details beyond these bonuses at this point.

      I'm not convinced that this explanation is true. I have not seen any actual evidence that placing AIG in chapter 11 or other form of receivership and reorganizing (or, who knows, even liquidating) it and structuring pro rata payments to AIG obligees is not a viable option. Certainly, we know that will cause a lot of pain, but do we really know it will causer more pain than the course we appear to be meandering toward?


    So why don't we give (5.00 / 1) (#46)
    by Cream City on Wed Mar 18, 2009 at 12:00:33 PM EST
    the help to the intermediate entities and bypass AIG, that's what I want to know. . . .

    one reason (none / 0) (#52)
    by Bemused on Wed Mar 18, 2009 at 12:18:39 PM EST
     is as I alluded to in passing that AIG has other entities to which it is obliged (which is all "counterparty really means in tis context; peole have become enamored of throwing this around apparently thinnking it sounds sophisticated) who are not within the risk chains at the root of the crisis (of course, i suppose the government could pass legislation to help them directly too).

      Another reason is there is substantial investment still in AIG itself and those investors would take a further hit.

      We might also be seeing a degree of legal formalism (for lack of a better term) giving at the top and allowng the contractual relationships below to follow "typical" legal resolutions.

      Politics might also have a little bit to do with it.