Thursday, March 5, 2009
Fed Refuses to Release Identity of Credit Default Swap Counterparties
As you know, the Fed and Treasury are refusing to reveal to Congress, their overseers or the American people who is getting the bailout money.
But did you know that the Fed is now refusing to disclose who the counterparties are to AIG's billions of dollars of credit default swaps?
An article from Market Watch summarizes the issue:
Calls increased Tuesday to reveal the financial institutions that got almost $40 billion in collateral from American International Group shortly after the government first bailed out the insurer last year.Bernanke is "unhappy" about it, but "doesn't know what to do about it"? Are the counterparties so powerful that they have instructed Bernanke not to reveal their identity?
AIG almost collapsed in September after ratings agency downgrades triggered demands for billions of dollars in extra collateral from firms that had bought derivative-based protection from the insurer on complex mortgage-related products known as collateralized debt obligations, or CDOs.
AIG didn't have that much money and faced bankruptcy. But it was saved by an $85 billion emergency loan facility from the Federal Reserve.
By Nov. 5, the insurer had paid out $37.3 billion of that money to counterparties who had purchased a certain type of derivative-based protection from AIG called multi-sector credit-default swaps, according to the company's third-quarter regulatory filing.
"AIG has given the counterparties $20 billion. Those people could be just about anybody in the world. Why won't the Fed disclose who those are?" Sen. Ron Wyden, D-Ore., asked Fed Chairman Ben Bernanke during congressional testimony on Tuesday.
Bernanke said the counterparties made "legal, legitimate, financial transactions" with AIG and presumed at the time that the contracts would remain private. "That is a consideration we have to take into account," he added.
Sen. Mark Warner, D-Va., suggested that AIG's counterparties should have to take a "haircut," rather than be made whole, because some of them probably didn't do enough due diligence on whether the insurer was financially strong enough to be selling such protection.
"In effect, what we're saying is, consequently, folks who bought these instruments and that, at some point in their process, should have been doing some level of credit analysis of what AIG was selling who didn't do that credit analysis are going to still come out whole for their lack of appropriate due diligence or responsible behavior," he said.
"I'm as unhappy as you are about that, senator," Bernanke replied. "I just don't know what to do about it."
Remember, CDS were the main reason for AIG's downfall (see this and this), and the reason that the government is bailing out AIG.
And yet "unhappily" Bernanke is gagged from identifying who these counterparties are who are receiving billions upon billions of taxpayer money?
It is not an overstatement to say that powers-behind-the-scenes are calling the shots.
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For AIG or for other entities the Counterparties are almost always from the same list of participants (link provided below) all of whom have at one time or the other acted as a Counterparty to each other. In the case of AIG you will find the listed entities acting as Counterparties for eachother for a variety of derivative & other credit transaction.
ReplyDeletehttps://www.isdadocs.org/demosite/2002masterprot/protocollistsdate.aspx
Eventually all of this secrecy will backfire on the Fed and Wall Street. Be patient.
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ReplyDeletePatience...well they best hope its before broke investors beat them up in the parking lot. Its amazing how angry someone who is used to being wealthy can get soo angry when they find it was all a ponzi scheme. But they never were living beneath their means. Glad I'm part Scotch-Irish LOL (tightwads, we is)
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