Saturday, March 21, 2009

AIG - the key question

I guess the best way to describe this is that when you rush things, stuff gets screwed up.

During that meeting, between the Geitner, Paulson et. al. in late 2008 when it was decided that the Treasury was going to end up owning AIG, why weren't the 10 largest CDS counterparties brought in and given this simple option:

"The United States Treasury will not step and and save AIG unless all CDS counterparties agree to take a 20% haircut".  This is done where AIG could not match off counterparties with offsetting swaps.

AIG at the time had $4.7 trillion in outstanding credit default swaps.  I think that most  of the counterparties would rather take a guaranteed 80 cents on the dollar than try their luck in bankruptcy court.

Of course, that would assume that Treasury would try to be the best stewards of taxpayers' money.

1 comment:

Realist Theorist said...


Actually, I think a bankruptcy judge should have been the one deciding; but, if the government was going to go crazy handing out money, the bare minimum would have been on insisting that the creditors agree to something like that.

The same for Freddy/Fannie.