Wednesday, December 3, 2008
Whether We End Up Paying For It Through Taxes Or Hyperinflation, It Will Still Come Out Of Our Pockets.
According to Reuters:
The U.S. government saved AIG from bankruptcy in September with a rescue plan that has ballooned to about $152 billion.The article makes it clear that the bailout of AIG was largely due to AIG's credit default swap exposure:
[The government has agreed to] clear the insurer of its obligations on about $53.5 billion in toxic mortgage debt . . . .Because the government has to date refused to cancel CDS, taxpayers are unnecessarily paying many billions of dollars in connection with AIG alone. . . and trillions altogether.The development is part of the U.S. Federal Reserve's agreement last month to buy up to $70 billion of toxic mortgage assets -- collateralized debt obligations -- underlying AIG credit default swaps (CDS), a type of debt guarantee.
AIG's responsibility to post collateral on the $53.5 billion in assets has been suspended . . . .
The need to post increasing amounts of collateral to counterparties for these guarantees left AIG with deep losses over the last four quarters. It has lost $42.5 billion in that period.***
The Federal Reserve has established two funds -- Maiden Lane II LLC and Maiden Lane III LLC -- to hold mortgage assets linked to AIG.
One will hold the assets underlying the AIG CDS, and the other entity will be for mortgage liabilities from a securities lending portfolio that caused additional losses for AIG.
Whether we end up paying for it in the form of taxes or hyperinflation, it will still come out of our pockets.
3 comments:
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AIG as I understand this problem is just the tip of the iceberg. Estimates as high as a Quadrillion dollars have been flung out there.
ReplyDeleteIf you throw in the Hedge fund manipulation of the commodities market I'm not sure there's a number big enough to describe this problem.
If the current assesment of 8.5 Trillion dollars they have created to try and cover this fraud then you have to believe our National Debt is apporaching 20 trillion.
Chicago School Economics in spades
Grey Tiger,
ReplyDeleteAs far as I can tell, the quadrillion figure is erroneous. Specifically, if you look at the charts published by BIS, I think that they show somewhere around 500 trillion, and that the good people who have thrown the quadrillion figure around were accidentally double-counting categories.
Still an incomprehensible number - almost 10 times bigger than the world's economy.
I wonder what AIG's liability to Goldman Sachs was...? Thanks Hank.
ReplyDelete