Governments feel forced to bail them out if they had problems.
By Daniel at 9 March, 2009, 2:41 am
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AIG’s 2nd Q 2008 financial statement discloses the $446B in credit insurance this company sold. A large part of the swaps, $307B, was bought by European banks and called “regulatory capital forbearance” trades. These swaps gave the banks permission NOT to hold capital against their long term securities. Another chunk went to Wall Street to hedge their subprime mortgage backed securities. The “forbearance’ book produced $156m in revenue for the first half of last year - exposing one of the most skewed risk reward ratios of all time.
AIG did such a booming business because it offered to post generous collateral if the value of the insured securities dropped or if its own credit rating fell. I imagine the SEC looked the other way because if that does not concentrate risk I do not know what else does. Yet no criminals have been put away and it has caused suffering around the globe.
Regarding the money for AIG
quote
The beneficiaries of the government’s bailout of American International Group Inc. include at least two dozen U.S. and foreign financial institutions that have been paid roughly $50 billion since the Federal Reserve first extended aid to the insurance giant.
Among those institutions are Goldman Sachs Group Inc. and Germany’s Deutsche Bank AG, each of which received roughly $6 billion in payments between mid-September and December 2008, according to a confidential document and people familiar with the matter.
Other banks that received large payouts from AIG late last year include Merrill Lynch, now part of Bank of America Corp., and French bank Societe Generale SA.
More than a dozen firms with smaller exposures to AIG also received payouts, including Morgan Stanley, Royal Bank of Scotland Group PLC, and HSBC Holdings PLC, according to the confidential document.
The names of all of AIG’s derivative counterparties and the money they have received from taxpayers still isn’t known, but The Wall Street Journal has identified some of them and is publishing others here for the first time.
http://gata.org/node/7232
The money going to foreign banks or our banks with foreign branches and partnerships can mean dollars are leaving the U.S. and not reaching our workers through the creation of jobs here. Instead, the money could flow to other nations where they will spend those dollars for commodities they need. Thus, any global recovery with or without us could cause high CPI here.
From weekend update on SNL last night.
AIG was given another $30 billion. $15 billion will be used to build the worlds largest toilet to which the remaining $15 billion can be flushed down.
They say that if we don’t bail out these institutions that are too big to fail, there would be a global financial collapse. These institution are claimed to be too big to fail because of their ties with so many other nations and their financial systems.
That is why they did that. They deliberately created this global network in the financial system so that This was by design so that problems could be bailed out by desperate governments.
It is the system and its systemic risk to all nations that have it that must end.
A global financial meltdown will not end the world. It will cause a lot of suffering but so will keeping that system and systemic risk in place. The system is bad for nations and they created the network so it would be more difficult to get rid of it. It was designed to let money flow to the very top and not designed for the best interests of the nations that money is flowing to the top from.
However, they may have been overconfident in their plan for this grab of power and wealth. It may be imploding on them and I hope it is even though millions or maybe billions will suffer for awhile. It is better than those people suffering even more later.
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