I'm not to sure what point your trying to make in your reply, but i'll take a stab at it. I also think you might be confused on who was selling the CDS "insurance" from your post. AIG was selling CDS to banks who owned mortgage backed securities and other type debt related vehicles like bonds so if those debts defaulted the banks wouldn't lose their entire investments because AIG would have to pay up to the banks. When the house market turned for the worse the mortgage backed securities owned by the banks defaulted and AIG had to pay them what was agreed upon in the CDS agreements, so in essence the US government is giving AIG bailout money to be directly given to these banks (which many are non-US institutions from the list provided in the post. In essence our taxpayer money is leaving the US and not helping us in anyway:
Quote:
Originally Posted by kenny
They created a bunch of contracts guaranteeing insurance on securities.
If by "they" you mean AIG then yes.
They never had means to pay this insurance. The CDS contracts are nothing more than a loophole designed to bypass insurance regulations set to prevent this behavior.
Yes, AIG never did have the capital to pay out the CDS insurance on the defaulted debt (I'm assuming most of this debt was from mortgage backed securities which went belly up when the housing market went bust and homeowners couldn't pay the higher ARM rates, or the price on their houses went below the purchase price, etc... and foreclosures increased)
Another huge problem is Naked CDS where the firm insuring the security doesn't even own the underlying security. Its just making bets with moral hazard written all over it. These guys could of deliberately fucked up the economy, lets face it the motive is there.
There not tricking us.
I'm assuming you mean the government when you say "their" in this one. Anyway, I never said anyone was tricking us. I just said the government is covering up whose hands the money is actually ending up in which is being funneled through AIG. By paying out the bailout money to AIG it looks like the taxpayer money is going into a US financial institution, where in actuality it is going to some non-US financial institutions.
All they have to do is void all the Credit Default Swaps.
who is "they"? If you mean AIG, the only way to not pay out the CDS insurance owed to banks is if they go bankrupt.
What will they lose?
By "they" if you mean AIG - they will go bankrupt. But if they are kept alive by the government through bailouts they are legally require to pay the CDS payouts which were bought by the banks/financial institutions
The premiums paid to AIG?
If they (the banks) don't get paid the promised amount by AIG from the CDS insurance they bought from AIG the banks were basically buying CDS insurance and paying premiums to AIG for no reason. If AIG doesn't pay out the amount promised in the CDS insurance the banks will lose all their investment in the debt that defaulted (mortgage backed securities when relating to our conversation).
|