AIG bellies up to the bar

[Winehole23]

Once again, AIG approaches the trough. (http://www.cnbc.com//id/29353282?ref=fp2) This is what happens when you don't declare default.

[coyotes_geek]

Things look bad. We better get all the executives on an exclusive golf retreat so that they can figure out a solution.

[George Gervin's Afro]

I work at an AIG subsidiary..:(

Good thing we are fully capitalized.

[RandomGuy]

Once again, AIG approaches the trough. (http://www.cnbc.com//id/29353282?ref=fp2) This is what happens when you don't declare default.

Unfortunately, from what I am given to understand the nature of their losses is insurance of bonds.

If they go under and can't fully pay on that insurance, EVERY bond that currently enjoys the highest of ratings from the rating agencies because of that insurance will have to be revalued.

The consequences of AIG failing would cause a small percentage of the Trillions of dollars in corporate and municipal debt to be written down on the books of any company (read other insurance companies, banks, pension funds, etc) or entity holding them.

Further, such a decline in asset quality would force insurance companies to stop issuing new policies, as they are required to have reserves based on the quality of their invested assets, and they would have to stop issuing new policies to build up those reserves. (less quality= more reserves)

The consequences of letting AIG fail make the consequences of letting GM fail look like stubbing your toe in comparison.

It would be .... bad.

[RandomGuy]

Unfortunately, from what I am given to understand the nature of their losses is insurance of bonds.

If they go under and can't fully pay on that insurance, EVERY bond that currently enjoys the highest of ratings from the rating agencies because of that insurance will have to be revalued.

The consequences of AIG failing would cause a small percentage of the Trillions of dollars in corporate and municipal debt to be written down on the books of any company (read other insurance companies, banks, pension funds, etc) or entity holding them.

Further, such a decline in asset quality would force insurance companies to stop issuing new policies, as they are required to have reserves based on the quality of their invested assets, and they would have to stop issuing new policies to build up those reserves. (less quality= more reserves)

The consequences of letting AIG fail make the consequences of letting GM fail look like stubbing your toe in comparison.

It would be .... bad.

By the way, a small percentage of 1 or 2 trillion dollars, say 2%, would be twenty to forty billion.

Not much in comparison, but it would have the effect of causing more companies to go under, and more defaults, and yet another nasty self-feeding spiral.

[Audrey VI]

Unfortunately, from what I am given to understand the nature of their losses is insurance of bonds.

If they go under and can't fully pay on that insurance, EVERY bond that currently enjoys the highest of ratings from the rating agencies because of that insurance will have to be revalued.

The consequences of AIG failing would cause a small percentage of the Trillions of dollars in corporate and municipal debt to be written down on the books of any company (read other insurance companies, banks, pension funds, etc) or entity holding them.

Further, such a decline in asset quality would force insurance companies to stop issuing new policies, as they are required to have reserves based on the quality of their invested assets, and they would have to stop issuing new policies to build up those reserves. (less quality= more reserves)

The consequences of letting AIG fail make the consequences of letting GM fail look like stubbing your toe in comparison.

It would be .... bad.No doubt. But we could survive it. We did in the past.

Is the way we're doing it now demonstrably better? Because I really do wonder about that. Temporization can mean more time to save the bacon, or more to linger in a defunct state. It's much more expensive the second way, or can be.

[RandomGuy]

background information:

Insurance industry analysis, excrutiating detail:
http://www.iii.org/media/industry/financials/2008firstninemonths/

Just the property and casualty industry (not including life and health insurance) holds $1T in assets, approximately 40% of which are tied up in corporate and municipal bonds that could be potentially affected. I would imagine that life insurance companies hold at least that much, but don't really know here I can find a direct summary total.

http://www.iii.org/media/facts/statsbyissue/industry/

[Audrey VI]

By the way, a small percentage of 1 or 2 trillion dollars, say 2%, would be twenty to fourty billion.

Not much in comparison, but it would have the effect of causing more companies to go under, and more defaults, and yet another nasty self-feeding spiral.Yowza, if true.:wow

[RandomGuy]

No doubt. But we could survive it. We did in the past.

Is the way we're doing it now demonstrably better? Because I really do wonder about that. Temporization can mean more time to save the bacon, or more to linger in a defunct state. It's much more expensive the second way, or can be.

Could we physically survive it? Sure.

But in this case the consequences of letting the first domino fall are avoidable.

In the meantime underwriting standards for this are being changed to fix the underlying system to preven the problem in the future.

This is the cheaper way out by far than letting so many companies and cities simply fall. I would note that many state/municipal/city bond payments are tied to the bond rating. If the bond rating falls the payments are accelerated and the interest rate climbs a lot, dbubling or tripling the cash outflows from the entity, and forcing a budget crunch.

Of all the bailouts, AIG is the one that MUST happen, because bailing out this company yields the most bang for the buck in terms of preventing futher rot.

[Audrey VI]

Audrey II-VI = WH23. Apologies to all for minor deception.

Cover is blown.

I like poker.

[Audrey VI]

Could we physically survive it? Sure.

But in this case the consequences of letting the first domino fall are avoidable.

In the meantime underwriting standards for this are being changed to fix the underlying system to preven the problem in the future.

This is the cheaper way out by far than letting so many companies simply fall.

Of all the bailouts, AIG is the one that MUST happen, because bailing out this company yields the most bang for the buck in terms of preventing futher rot.Rots from the head down. The head is already rotten, no?

I see what you mean about preventing the very first domino -- after Lehman -- to fall. If we can somehow prevent it it would be worthwhile to attempt.

[Audrey VI]

Things look bad. We better get all the executives on an exclusive golf retreat so that they can figure out a solution.Let's propose ourselves. Why not? :lol

[coyotes_geek]

Let's propose ourselves. Why not? :lol

Sounds good to me. :toast Since the current plan appears to simply be "here's a bunch of taxpayer money, try to do better" the bar for what qualifies as a good idea doesn't appear to be set very high.

[RandomGuy]

Sounds good to me. :toast Since the current plan appears to simply be "here's a bunch of taxpayer money, try to do better" the bar for what qualifies as a good idea doesn't appear to be set very high.

I am for fully nationalizing some of the companies we have to bail out. Fire and/or prosecute the idiots responsible, hire a turn around dude/dudette, then sell the company and recover some/most of the losses.

[RandomGuy]

I am for fully nationalizing some of the companies we have to bail out. Fire and/or prosecute the idiots responsible, hire a turn around dude/dudette, then sell the company and recover some/most of the losses.

This of course would completely f*** over the shareholders of those companies, but they were f***ed anyways.

[Winehole23]

Since the current plan appears to simply be "here's a bunch of taxpayer money, try to do better" the bar for what qualifies as a good idea doesn't appear to be set very high.This is what blows my mind. The best they can come up with are these obviously retarded schemes that won't work. It's like watching Ideocracy.

[coyotes_geek]

I am for fully nationalizing some of the companies we have to bail out. Fire and/or prosecute the idiots responsible, hire a turn around dude/dudette, then sell the company and recover some/most of the losses.

That makes a hell of a lot more sense than what we're doing now. You want the taxpayer's money, then dump the board of directors and replace them with people who will represent the taxpayer's interests and then go from there.

Of course I don't have much faith in the government's ability to find people who would faithfully represent us taxpayers, but it's still better than the current fiasco.

[coyotes_geek]

This is what blows my mind. The best they can come up with are these obviously retarded schemes that won't work. It's like watching Ideocracy.

We could try dumping toilet water on AIG. :lol

[Winehole23]

We could try dumping toilet water on AIG. :lolI'm in. Where's the GTG?

[Winehole23]

By the way, a small percentage of 1 or 2 trillion dollars, say 2%, would be twenty to forty billion.

Not much in comparison, but it would have the effect of causing more companies to go under, and more defaults, and yet another nasty self-feeding spiral.This is related to the theme of temporarily ditching capital restrictions and accounting standards. The enforcement of regular rules hurts us needlessly and may lead to even worse.

[Extra Stout]

So, basically, all major financial institutions are grossly insolvent, and we have to throw endless amounts of government money at them to maintain this illusion that there is still any kind of functioning global economy going a little while longer, before it all falls apart, people start starving, and the wars begin.

I guess throwing all that government money at them makes sense, since it never will have to be paid back once the government ceases to exist.