tag:blogger.com,1999:blog-5880610.post1647518798611356390..comments2024-01-13T18:57:18.243-05:00Comments on Information Processing: AIG bailout: half trillion exposure for taxpayersSteve Hsuhttp://www.blogger.com/profile/02428333897272913660noreply@blogger.comBlogger26125tag:blogger.com,1999:blog-5880610.post-19814696215580830172009-03-20T12:56:00.000-04:002009-03-20T12:56:00.000-04:00Capitalism will always survive, because socialism ...Capitalism will always survive, because socialism will save it.<BR/><BR/>The bourgeoisie knows it cannot survive another great depression.<BR/><BR/>Great Depression II = Scandinavian socialism for everyone forever.Ian Smithhttps://www.blogger.com/profile/06837467954881003505noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-68079635046125861542009-03-20T09:52:00.000-04:002009-03-20T09:52:00.000-04:00You sound like a company man. I say let's roll th...You sound like a company man. I say let's roll the dice.Carson C. Chowhttps://www.blogger.com/profile/08464737817585277975noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-85363363907415073972009-03-20T09:36:00.000-04:002009-03-20T09:36:00.000-04:00> What would happen if we let the whole system ...> What would happen if we let the whole system fail and then recapitalize just enough of it to get a workable credit system again. <BR/><BR/>The great depression. There would be a mad scramble, confusion and fear; the consequence would be significantly reduced economic activity.<BR/><BR/>Getting a workable system going again could take years! Institutions, tacit understanding of rules, trust, Steve Hsuhttps://www.blogger.com/profile/02428333897272913660noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-8857284383846360452009-03-20T07:30:00.000-04:002009-03-20T07:30:00.000-04:00We don't need to nationalize everything. What wou...We don't need to nationalize everything. What would happen if we let the whole system fail and then recapitalize just enough of it to get a workable credit system again.Carson C. Chowhttps://www.blogger.com/profile/08464737817585277975noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-60319748778155085742009-03-19T22:55:00.000-04:002009-03-19T22:55:00.000-04:00I know I'm a hypocrite and a fool but Taleb has ma...I know I'm a hypocrite and a fool but Taleb has made out well with <BR/>black swan puts. I'll try the same with calls for a company that has been ruined unfairly even though 80% is "property of Uncle Sam" in warrants, convertible preferred, but not in common?Ian Smithhttps://www.blogger.com/profile/06837467954881003505noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-57185189244161726552009-03-19T14:45:00.000-04:002009-03-19T14:45:00.000-04:00anon:AIG no longer holds most of the super senior ...anon:<BR/>AIG no longer holds most of the super senior swaps on multi sector CDOs, the contracts were terminated at a loss to AIG ( they were forced to realize the mark-to-market losses, even though credit losses are minimal, in fact close to 0), the counterparties also sold the underlying CDOs tranche to the fed (maiden lane iii), so upside will accrue to the "taxpayerx" via the fed spv and not jckhttps://www.blogger.com/profile/09902088903578116910noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-915585163466786572009-03-19T14:36:00.000-04:002009-03-19T14:36:00.000-04:00PS A little speculation never hurt anyone ;-)PS A little speculation never hurt anyone ;-)Steve Hsuhttps://www.blogger.com/profile/02428333897272913660noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-38713718706083023432009-03-19T14:15:00.000-04:002009-03-19T14:15:00.000-04:00Hmm... very good point. They may have just bought ...Hmm... very good point. They may have just bought their way out.<BR/><BR/>So much for markets as good information processors -- why can't I find any detailed information on exactly what is going on with AIG CDS? After all, you and I own the company now.Steve Hsuhttps://www.blogger.com/profile/02428333897272913660noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-53893241005502471702009-03-19T14:04:00.000-04:002009-03-19T14:04:00.000-04:00Not necessarily. To prevent having to post further...Not necessarily. To prevent having to post further collateral and perhaps by agreement with Uncle Sam AIG wanted to undo these contracts. But who will take the other side? No one. The counterparties say, "We'll do it, but we name the price."<BR/><BR/>How much does it cost to undo a CDS no one wants? A lot.<BR/><BR/>This is what I gathered from listening to Greenberg on Charlie Rose. Of course, Ian Smithhttps://www.blogger.com/profile/06837467954881003505noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-52253286512252558272009-03-19T12:05:00.000-04:002009-03-19T12:05:00.000-04:00Good question. But there were real payouts to thos...Good question. But there were real payouts to those other banks, not just posting collateral (at least as reported). So some contracts must have really triggered.Steve Hsuhttps://www.blogger.com/profile/02428333897272913660noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-61702244912210091482009-03-19T10:25:00.000-04:002009-03-19T10:25:00.000-04:00Was Cassano right? Was AIGFP's CDS subrime exposur...Was Cassano right? Was AIGFP's CDS subrime exposure only for the super-senior tranche?<BR/><BR/>Buy AIG calls.Ian Smithhttps://www.blogger.com/profile/06837467954881003505noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-63135356188986520242009-03-19T10:20:00.000-04:002009-03-19T10:20:00.000-04:00The CDS graph is pretty complex -- does Treasury, ...The CDS graph is pretty complex -- does Treasury, even now, know what it looks like? Six months ago I thought they'd be doing everything to find out, but now I question whether they've done their job.<BR/><BR/>Also, undoubtedly, many of the nodes are foreign banks (see payments listed in original post) and hedge funds. Are we going to nationalize them too?<BR/><BR/>Since CDS contracts require theSteve Hsuhttps://www.blogger.com/profile/02428333897272913660noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-54481250922336335102009-03-19T06:00:00.000-04:002009-03-19T06:00:00.000-04:00So Steve, suppose we let all the banks fail. As y...So Steve, suppose we let all the banks fail. As you showed in your CDS diagram, the problem is that if you let one bank fail then the imbalance in flux percolates throughout the network, but if you let them all fail then the net loss is much lower since they're all hedged. At most only tens of billions must change hands rather than trillions. Then we recapitalize all that are standing and startCarson C. Chowhttps://www.blogger.com/profile/08464737817585277975noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-39246935654620951122009-03-18T11:29:00.000-04:002009-03-18T11:29:00.000-04:00"If I'm reading you right, the basic idea is to ac..."If I'm reading you right, the basic idea is to acknowledge that many derivatives positions involve substantial embedded leverage"<BR/><BR/>Bubbles are, by definition, speculative. <BR/><BR/>If you aren't a market-maker or an investor, you're a gambler and you're a problem.<BR/><BR/>The consequences of speculation:<BR/><BR/>.com bubble<BR/>housing bubble<BR/>$147 oil bubble<BR/>1929 stock market Ian Smithhttps://www.blogger.com/profile/06837467954881003505noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-14521906357019930842009-03-18T01:44:00.000-04:002009-03-18T01:44:00.000-04:00anon:I'm not sure I agree with your definition of ...anon:<BR/><BR/>I'm not sure I agree with your definition of speculator, but I think the point you are trying to make has some merit. If I'm reading you right, the basic idea is to acknowledge that many derivatives positions involve substantial embedded leverage and that we could improve matters by regulating traders to maintain appropriate 'reserves' (or margin) against that leverage.<BR/><BR/>Sethhttps://www.blogger.com/profile/16486234948199900568noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-84897486773620248732009-03-18T00:53:00.000-04:002009-03-18T00:53:00.000-04:00BTW, "the standard answer" is complete BS. There i...BTW, "the standard answer" is complete BS. <BR/><BR/>There is a term for coming up with reasons for the way things are whether thy need to be that way or not. <BR/><BR/>The term is "ideology".<BR/><BR/>A speculator in derivatibes is someone who does not own the underlying and does not plan to buy the underlying. De facto but not de jure, a speculator is the same as a frequent trader.<BR/><BR/>Ian Smithhttps://www.blogger.com/profile/06837467954881003505noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-56254165509211840342009-03-17T23:14:00.000-04:002009-03-17T23:14:00.000-04:00More:AIG Firestorm Raises Alarm For Other Firms(Wa...More:<BR/><BR/><A HREF="http://www.washingtonpost.com/wp-dyn/content/article/2009/03/17/AR2009031703565_pf.html" REL="nofollow">AIG Firestorm Raises Alarm For Other Firms</A><BR/>(Washington Post)<BR/><BR/><EM>"Am I afraid of the populist outrage? Yes," said Lynn Tilton, chief executive of Patriarch Capital, a private-equity firm that has weighed making such an investment.</EM>CWhttps://www.blogger.com/profile/15671404306768077552noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-12015490834379952622009-03-17T22:12:00.000-04:002009-03-17T22:12:00.000-04:00Is that the Eliot Spitzer I know and love (see pre...Is that the Eliot Spitzer I know and love (see previous posts)? :-)<BR/><BR/>BTW, the standard answer for why you need "speculators" is to provide liquidity and to feed information into the market.Steve Hsuhttps://www.blogger.com/profile/02428333897272913660noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-59414836395472124262009-03-17T22:09:00.000-04:002009-03-17T22:09:00.000-04:00Ah, yes, the counterparties. Currently on Slate.co...Ah, yes, the counterparties. Currently on Slate.com:<BR/><BR/><A HREF="http://www.slate.com/id/2213942/" REL="nofollow"><STRONG>The Real AIG Scandal</STRONG></A><BR/><EM>It's not the bonuses. It's that AIG's counterparties are getting paid back in full.</EM><BR/>By Eliot SpitzerCWhttps://www.blogger.com/profile/15671404306768077552noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-61651231029358513642009-03-17T18:05:00.000-04:002009-03-17T18:05:00.000-04:00I'd like to see Treasury force AIG to spin off the...I'd like to see Treasury force AIG to spin off the Financial Products division and then put it into bankruptcy.<BR/><BR/>There is a game of 'musical chairs' going on among the AIG counterparties. Rather than continue setting out more chairs, we'd do better to stop the music and let them (and their lawyers) scramble for the remaining chairs. Even if we wind up needing to bail out some of those Sethhttps://www.blogger.com/profile/16486234948199900568noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-64922957769637818632009-03-17T17:56:00.000-04:002009-03-17T17:56:00.000-04:00anon,If you want to ban 'speculators', please prov...anon,<BR/><BR/>If you want to ban 'speculators', please provide a precise definition and explain how you propose to enforce the indicated restrictions.Sethhttps://www.blogger.com/profile/16486234948199900568noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-55045383831724702222009-03-16T18:40:00.000-04:002009-03-16T18:40:00.000-04:00"Hedgers and speculators are complementary parts o..."Hedgers and speculators are complementary parts of the risk transfer function."<BR/><BR/>No. They are NOT. This is typical free-market ideology.<BR/><BR/>Commodity futures DO NOT require speculators.<BR/><BR/>Options DO NOT require speculators.<BR/><BR/>Sell Puts. Buy Calls. --- hedges short position.<BR/><BR/>Sell Calls. Buy Puts. --- hedges long position.<BR/><BR/>CDSs are 99% speculation.<BR/Ian Smithhttps://www.blogger.com/profile/06837467954881003505noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-9711628845193399052009-03-16T14:28:00.000-04:002009-03-16T14:28:00.000-04:00The problem with CDS isn't that people speculate w...The problem with CDS isn't that people speculate with them. There is no such thing as a 'hedgers only' market. Hedgers and speculators are complementary parts of the risk transfer function. <BR/><BR/>The issue with CDS is that there is NO RELIABLE DIVERSIFICATION strategy. The normal 'insurance' parts of AIG probably are ticking over relatively unchanged (apart from portfolio impact) because Sethhttps://www.blogger.com/profile/16486234948199900568noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-65498218989384374112009-03-16T13:00:00.000-04:002009-03-16T13:00:00.000-04:00CDSs aren't used for insurance. If they were would...CDSs aren't used for insurance. If they were wouldn't the premium give a treasury yield every time?<BR/><BR/>They were used and will be used to speculate. The market makers in this area are running bucket shops.<BR/><BR/>Citadel and the CME want to be a clearer of CDSs.<BR/><BR/>Much better --- outlaw them. Fines for all US and UK businesses who trade in these bets directly or through Ian Smithhttps://www.blogger.com/profile/06837467954881003505noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-39115571506213115382009-03-16T11:52:00.000-04:002009-03-16T11:52:00.000-04:00Aig really made a mess out of my life because they...Aig really made a mess out of my life because they were the workers comp carrier for the company were I worked for 25 years. The whole story is very long contact me and I will tell all.Ithappened in 12/22/05 and still problems. I say dont give them a dime shut them down and hang them by the -----.jimmyhttps://www.blogger.com/profile/12205652118742379668noreply@blogger.com