It makes me so freakn angry at this bailout BS. Govt should never got involved in the first place! Let the chips fall where they may. Let the godam market decide. They are just delaying the inevitable and are gambling with tax payers money. God damm I'm pissed off.
I want to know who the other side of AIGs CDS bets are. If they are banking institutions, then I think its worth the 30B. If they are hedge funds, then we should let it go.
The final solution to all of this shit is the breaking of all of these contracts that are dragging these companies down.
Every few months I come back to the same problems, with the same unresolved questions. Who is Counter-Party to AIG? We're talking 180 Billion in payouts, or more. Not one bank, publicly traded company, fund, or investor has reported sick income from CDS payout, or arbitrage? Underwriters are supposed to hedge their risk. So when CDS premium goes up, they buy offsetting positions that result in small, accumulating losses. But in order for AIG to lose money on any transaction (selling low, and buying higher), their counter-party must have bought low and sold HIGHER!! Its the same market, working under the same principles = zero sum. So now, the Government has literally handed out some 9+ Trillion dollars - most of which has gone to cover "derivative losses" - yet not one publicly traded Company, on the planet, has yet to report any profit accruing WHATSOEVER, from CDS trade???? Thats impossible. Its like if 10 people show up for a poker game and they all walk away, claiming they lost to each other. AIG "lost" to JP Morgan, who "lost" to Citi, who "lost" to UBS, who "lost" to Northern Rock, who "lost" to xyz. Somebody has to walk away from the table with all that cash. Money can't disappear into a vacuum like that. Its impossible. Seriously. Are we to believe a few retail traders are now infinitely richer than Bill Gates? Or 20 companies are now bigger than the entire Market Cap of the S&P 500????????
How bout a windfall profits tax on CDS payouts, say 95 percent of each jackpot paid? We'd re-capture a good bit of these winning lottery tickets (aka scandalous corporate welfare for FOHs, friends of Hank). Not all of it course, because lotsa of the jackpot winners are overseas. Good news is that USA now runs the lottery (forced into it), so it should know who is collecting the payouts. Thank maybe GS would take a hit if this idea gains traction?
Its a decent idea. A better one is to nullify CDS, then ban/outlaw them. GS would definitely take a hit, either way. Those guys were spinning compounded garbage.
Easier to retroactively tax than to retroactively break the policies. And if you tax, you also can require withholding the expected tax due on the jackpots, like at the track, where window deducts 33 percent or so of all big winning tickets. And by withholding, you'd snare the overseas lottery winners, tons of them. Now, if you own a winning ticket and have a big loss in the underlying, you'd make the netting argument against paying the windfall tax. Might be a good idea to allow limited netting, further conditioned in part on status of policy purchaser (insurers, pensions, so on), on remote chance that the policy actually had a legit purpose. But if you merely own the lottery ticket without the underlying -- as many do (read GS) -- you'd really be nervous. One reason we know these policies are the BIG CON is that so many were brought by those simply betting on the payout.
1. Reinstate the Glass-Steagall Act 2. Void existing CDS contracts 3. Retroactively tax the shit out of CDS gains Let's just get this thing over with, once and for all, and try to get back to some type of normalcy.
From the AIG conf call: The Q4 hits were down to asset revals of varying sorts and a write off of tax credits and goodwill. The new govt rescue plan is complex but includes a repayment of the amount ($38bn) currently drawn under the govt credit line by transfer of the ownership of ALICO and AIA, securitisation of $8.5bn of US life earnings streams and some other asset sales. The existing $40bn prefs are to made more junior with a 10% non-cum coupon plus a new $30bn equity line also non-cum non-voting prefs. On the call, AIG discussed why the govt has regarded it as strategically important to the US - political stuff such as largest provider of pensions to teachers and healthcare workers, largest buyer of aircraft from Boeing etc etc, but, most importantly, it has $1trn of counterparty risk with just 12 financial institutions (that's more than $84bn each). Ouch...
Well, I dunno. If you get a margin call from your broker, who gets the cash ? Not the counter party, they got it already. And if you're leveraged 30:1, that's alot of cash. You shovel cash into your account as it goes down the drain.