AIG confidential memo: $1.6 trillion in derivatives exposure

[Winehole23]

http://www.scribd.com/doc/13112282/Aig-Systemic-090309

The figure is on on page 17.

[RandomGuy]

credit default swaps.

The fuckers that sold that shit deserve to be drawn and quartered.

S'all I gotta say about that.

The more one finds out how much of that is out there, and it is in the tens of trillions, the more you should be concerned.

This stuff was well over the line between investing and gambling.

[Winehole23]

What kind of risk model rules out depreciation? That's what I still don't get.

[RandomGuy]

What kind of risk model rules out depreciation? That's what I still don't get.

??

Perhaps I should read the article in the OP. :lol

[RandomGuy]

What kind of risk model rules out depreciation? That's what I still don't get.

I read through it, but haven't seen this yet. Page reference?

[RandomGuy]

Yeesh.

As I have said before, letting AIG fail is NOT an option. Remember that most bonds sold in the US, and that includes government bonds, are held by insurance companies, because of the way the insurance laws are written.

If you get a big insurer suddenly have a fire sale to raise cash, that would have the effect of raising borrowing costs for literally everyone.

[MiamiHeat]

RandomGuy

don't we need to do something to prevent the government from being dependent on private companies in the future?

[boutons_]

I expect the "captured" Congressional prostituted eunuchs to crumple when it comes time regulate the financial sector back in the plumbing closet where it belongs.

Any institution or private lender that sells a mortage MUST service that mortage to term, absolutely forbidden to sell it into the financial swamp.

Credit card rates can be adjustable rate, but must be pegged to no more than x % about Fed rate, where x is much less than 10%. 20%+ is criminal usury.

This crisis is totally unnecessary, completely fabricated by the financial sector, which is going completely unpunished.

[RandomGuy]

RandomGuy

don't we need to do something to prevent the government from being dependent on private companies in the future?

??

Elaborate, please. I think I know what you are getting at, but am not sure enough to give a decent response.

[RandomGuy]

I expect the "captured" Congressional prostituted eunuchs to crumple when it comes time regulate the financial sector back in the plumbing closet where it belongs.

Any institution or private lender that sells a mortage MUST service that mortage to term, absolutely forbidden to sell it into the financial swamp.

Credit card rates can be adjustable rate, but must be pegged to no more than x % about Fed rate, where x is much less than 10%. 20%+ is criminal usury.

This crisis is totally unnecessary, completely fabricated by the financial sector, which is going completely unpunished.

There are ways of bundling mortgages that do allow for some of the things you would like, such as the Danish model. Somebody posted something about that here a while back.

I think anything over 20% is unreasonable. If you are borrowing at that rate, you don't need to be borrowing at all.

The financial sector does fine, IF it is forced to have some reasonable transparency in its transactions.

Unfortunately the push for transparency is met with a lot of resistance, because a lot of business types view ANY regulation as bad, no matter how good it really is, or how sorely needed it is.

[MiamiHeat]

??

Elaborate, please. I think I know what you are getting at, but am not sure enough to give a decent response.

for profit, private sector companies apparently have the power to run our nation's economy into the ground should they grow large enough.

if said large company has bad business practices, the government suddenly has to bail them out to save us from something far worse

this is the govt being dependent on for profit private companies, and it seems illogical to allow this to continue

what can we do to fix this so this doesn't happen again? so that the govt and the taxpayer doesn't get screwed because of bad business practices by the private sector?

[Winehole23]

what can we do to fix this so this doesn't happen again? so that the govt and the taxpayer doesn't get screwed because of bad business practices by the private sector?Receivership aka nationalization. It's the normal procedure for failed banks.

The FDIC creates an RTC like bridge institution to get rid of bad debts and save profitable parts of the banks. Bad banks get pulled apart and sold off piecemeal to banks who are not in trouble.

Daniel Larison and others turn around the too big to fail thesis in an interesting way. They ask: are these banks too big to exist?

[Winehole23]

seven years later, the systemic risk is still there:


Central counterparty clearing firms do not constitute a major source of systemic risk, a new study from the US Treasury shows, but large counterparties that are heavy net sellers of credit default swaps could pose a threat to the financial system, irrespective of the health of the clearinghouse.


A report on contagion in the CDS market by the Office of Financial Research found that CDS counterparties that are not direct members of CCPs, such as hedge funds, asset managers and insurers, pose the biggest risk to financial contagion, despite regulatory efforts to eliminate systemic risk by mandating vanilla contracts into central clearing.


"More attention should be paid to firms that are very large and have highly unbalanced CDS positions, whose failure can trigger large systemic losses even when the CCP does not fail," say the report authors Mark Paddrik, Sriram Rajan, and H Peyton Young.

http://www.reuters.com/article/idUSL8N1DX4ZA

[CosmicCowboy]

I expect the "captured" Congressional prostituted eunuchs to crumple when it comes time regulate the financial sector back in the plumbing closet where it belongs.

Any institution or private lender that sells a mortage MUST service that mortage to term, absolutely forbidden to sell it into the financial swamp.

Credit card rates can be adjustable rate, but must be pegged to no more than x % about Fed rate, where x is much less than 10%. 20%+ is criminal usury.

This crisis is totally unnecessary, completely fabricated by the financial sector, which is going completely unpunished.

Boo, if your credit didn't suck they wouldn't be charging you 20%.

[Winehole23]

Financial stocks are leading the rally...pricing in deregulation it would seem. Expanding credit and deregulating risk is a bad move in a debt deflation scenario, which we're arguably still in.

[SnakeBoy]

Receivership aka nationalization. It's the normal procedure for failed banks.

The FDIC creates an RTC like bridge institution to get rid of bad debts and save profitable parts of the banks. Bad banks get pulled apart and sold off piecemeal to banks who are not in trouble.


That ship sailed a long time ago. There was bipartisan agreement that the only option was to save the TBTF's in order to prevent the crisis from moving from Wall Street to Main Street.

[Winehole23]

there's stiil no guarantee that'll work

[Winehole23]

U.S. global systemically important banks (G-SIBs) have more than $2 trillion in total exposures to Europe. Roughly half of those exposures are off-balance-sheet…U.S. G-SIBs have sold more than $800 billion notional in credit derivatives referencing entities domiciled in the EU.


At the end of 2015, U.S. life insurers’ derivatives exposure, as reported in statutory filings, totaled $2 trillion in notional value. This $2 trillion does not include derivative contracts held in affiliated reinsurers, non-insurance affiliates, and parent companies that do not have to file statutory statements. Details on these entities’ derivatives positions are not publicly available...According to statutory data on insurance company legal entities, nine large U.S. and European banks are counterparties to about 60 percent of U.S. life insurers’ $2 trillion in notional derivatives. These data show that despite central clearing, derivatives interconnectedness between the U.S. life insurance industry and banks remains substantial.https://www.financialresearch.gov/financial-stability-reports/files/OFR_2016_Financial-Stability-Report.pdf