Wednesday, January 27, 2010

AIG Bailout may have been sown in 2003 when the same AIG stopped insuring Wall St brokerage firms against bankruptcy / Excess S.I.P.C.

Today's House Committee hearings with Mr Geithner and Mr Paulson are INCORRECTLY looking at the weeds, the 2008 AIG Bailout when the roots of that bailout were a story that made the NY Times in 2003.

In 2003 AIG stopped insuring the Wall St brokerage firms for bankruptcy, known as Excess S.I.P.C. insurance.

Quote from AIG 2003.
''It's too much exposure,'' said Joe Norton, a spokesman for the American International Group (AIG). What exposure - was AIG concerned enough about - to exit a line of business - that over 30 years there was not one claim paid, correct not one.

"But no other part of the surety bond business has been affected as extremely as coverage for the brokerage houses. The insurers have not trimmed coverage or raised prices; they have simply gotten out. See NY Times article here from 2003 (not a typo)


After 2003 AIG FPG Financial Products Group - NOT the same as AIG's regulated and always adequately reserved Insurance life, health, property insurance businesses began selling Credit Default Swaps CDS ironically insuring many of the same risks AT the broker dealers but on a customized a la carte basis for LARGER fees for the likes of Goldman, Merrill Lynch, UBS. AIG's highy profitable securities lending unit's operations especially with counterparties bears investigation not limited to related collateral requirements and valuations.

SIFMA - formerly known as the SIA.
Published the MBS / CDO issuance tables for 2004 to 2007 by the securities industry - see here.
You will read in the footnotes that CDS enabled "Synthetic CDOs" and which firm was writing most of the CDS - AIG.
Link here

And the CDS were written on how many asset classes - ONE.
And the name of that asset class - Real Estate.
And real estate appreciates how much over the 70 years up to 2000 - about 10% annually.
And how much did real estate appreciate in many major markets - 20, 40, 60% annually.
For how many years? - 3 to 4 years running, 2004, 2005, 2006. 2007.
And how many mortgages were issued to speculators / NON principal residences - 20%
And the long historical average of same was what? 5%
And Fannie Mae published this information when? 2005
And S&P wrote "Who will be left holding the bag" when? 2005
Link here

And certain Wall St brokerage firms engaged in massive LEVERAGED PROPRIETARY TRADING at over 20 or more to 1.
And leverage has NOTHING to do with facilitating customers' trades.
And leverage has ALL to do with cash bonus paydays for proprietary traders.

And AIG FPG was not the ONLY writer of CDS.
And JP Morgan, Citigroup / Smith Barney, Morgan Stanley, Wells Fargo, GE Capital, Berkshire Hathaway were NOT AIG FPG CDS counterparties. Why, what, when and how did they know to avoid AIG FPG?
Mr Geithner stated he had to treat each AIG FPG counterparty equally, yet was this really equal treatment considering that at least 5 major players were NOT - perhaps because they did their due diligence and avoided AIG CDS?
Link here See page 24 for the list of amounts paid and the counterparties.

Concentration, Speculation and LEVERAGE enabled solely by those who had the most information, created, traded and valued derivative securities privately in OTC markets, defined and controlled certain markets and are the SAME parties at any point to have said NO.
But they didn' we are still trying to understand what and why? It's called compensation.

Joseph Stiglitz put us all on notice when he published "Asymmetric Information Advantages" skew ALL markets' efficiencies; especially LEVERAGED private OTC markets and private OTC securities and related contracts.

A continuing but perhaps unavoidable siesta on the US taxpayers dime; unfairly the ultimate counterparty.

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