AIG To Report 60 billion loss

[ElFenix]

Originally posted by: Craig234

See my sig.

Banks that are too big to fail are too big to exist.
- Sen. Bernie Saunders

fwiw, the FDIC insurance program basically means that society has deemed every covered bank as too big to fail.

 

[Craig234]

Originally posted by: ElFenix

Originally posted by: Craig234

See my sig.

Banks that are too big to fail are too big to exist.
- Sen. Bernie Saunders

fwiw, the FDIC insurance program basically means that society has deemed every covered bank as too big to fail.

No, the FDIC insurance program protects the *customers*, not the bank. It *helps* the bank, by keeping the customers from pulling the cash out whenever they're scared.

I've heard about two banks a week are being taken over by the FDIC, who pay the customers their money - the banks fail The smaller ones, that is.

So what's missing from this picture that Bernie and I want to add?

Not allowing banks to get to the 'too big to fail' size, keeping them smaller and expendable.

A century ago we had the great progress of recognizing the problem of monopoly and price fixing, and outlawed it; now, we need to see the need for further limits.

 

[ElFenix]

Originally posted by: Craig234

Originally posted by: ElFenix

Originally posted by: Craig234

See my sig.

Banks that are too big to fail are too big to exist.
- Sen. Bernie Saunders

fwiw, the FDIC insurance program basically means that society has deemed every covered bank as too big to fail.

No, the FDIC insurance program protects the *customers*, not the bank. It *helps* the bank, by keeping the customers from pulling the cash out whenever they're scared.

I've heard about two banks a week are being taken over by the FDIC, who pay the customers their money - the banks fail The smaller ones, that is.

So what's missing from this picture that Bernie and I want to add?

Not allowing banks to get to the 'too big to fail' size, keeping them smaller and expendable.

A century ago we had the great progress of recognizing the problem of monopoly and price fixing, and outlawed it; now, we need to see the need for further limits.

well, yes, it protects the deposit side. before the FDIC insurance, any bank failure was too much, because usually there was a domino effect that caused other bank failures and 'panics.' ergo, any one bank failure could bring down the system. so, any bank was too big to fail. the FDIC insurance is what allows some banks to fail, without being 'too big to fail.'

 

[Bird222]

Originally posted by: GTKeeper

1) They are not traded on an exchange. Right now I cannot look at ANY financial company's balance sheet and determine its worth. It simply cannot be done because off the books lie billions if not trillions of CDSs. So what if a company has 50 billion in cash on its books, if AIG fails (or some other entity) and I issued a CDS to someone who insured themselves of such an event, my 50 billion is wiped out instantly. This needs to change, we need to put all CDSs on an exchange.

This I don't understand. Do they not have to record these contingent liabilities on their books or at least include them in the notes to the financial statements? If not, how are they recording the premiums received on their books?

 

[imported_Lothar]

Originally posted by: GTKeeper

Originally posted by: Lothar

Originally posted by: dullard

Originally posted by: GTKeeper
Sources close to the company said the loss will be near $60 billion due to writedowns on a variety of assets including commercial real estate.
...
This is about as scary as it gets. Oh and AIG still has 500 billion dollars worth of CDS which we have no clue what percentage are 'good' or 'bad'.

AIG had the trifecta:
1) The first crash: residential mortgages. This started kicking in a year or two ago.
2) The second crash: commercial real estate. America has 6x the square footage per capita of commercial real estate compared to the next largest country (per capita). The commercial real estate market was propped up more than the residential market. It'll crash much harder, especially if the economy goes bad. This is kicking in right now.
3) The third crash: credit default swaps. I don't have a clue when this will kick in but it is a massive beast that is looming. Think multiples of the US GDP.

I've never really been able to understand this CDS market warning that people keep talking about.

Not all CDS are bad.
There are tons of companies making money off CDS in this market. Of course Mr. Market only likes to focus on popular companies that are on a media blitz.

For those that don't know what CDSs are, they are insurance policies based on an event X. You can have a CDS for virtually anything. It could be as ridiculous as, if the sky turns pink tomorrow, AIG owes me a trillion dollars. AIG thinks the sky will never turn pink and it issues me the CDS and in exchange I pay a premium every year to AIG.

Lothar,

You are right, not all CDSs are bad. The problem with them is 3 fold.

1) They are not traded on an exchange. Right now I cannot look at ANY financial company's balance sheet and determine its worth. It simply cannot be done because off the books lie billions if not trillions of CDSs. So what if a company has 50 billion in cash on its books, if AIG fails (or some other entity) and I issued a CDS to someone who insured themselves of such an event, my 50 billion is wiped out instantly. This needs to change, we need to put all CDSs on an exchange.

2) Ultimately the CDS market allowed (much like CDOs) companies to circumvent the rating system. AIG started writing CDSs without hardly any collateral because they had a kick-ass rating. This also allowed places like pension funds, who cannot invest in anything below investment grade (A and above) to buy a CDS from AIG to insure their bond purchases that were B+ or whatever because the CDS (based on AIG's rating) suddenly made the bond investment grade. If that company goes bust, or AIGs rating gets cut then the pension fund cannot hold that bond anymore and it needs to sell. Not only that, when your rating gets cut AIG needs to IMMEDIATELY post collateral against all their CDSs! It is my assumption that the 150 billion we pumped into AIG was basically to settle CDSs. Unfortuently they have 500 billion on 'the books' still according to estimates.

3) CDSs can be written on ANYTHING. They are basically gambling instruments on Wall St. and because no one know who has them, how much they are liable for, we are in this black hole of no confidence and total lack of transparency. Free market at work here (no regulation, we trust what the companies say).

The reason CDSs are so destructive is that not only does a company like JPM have to worry about its books, but it needs to worry about places like Wells Fargo, AIG, BoA etc. because if they fail that pottentially puts JPM on the hook for billions. And in this case what does JPM do? It purchases MORE CDSs to protect itself from such events, but that just puts another strand in the massive spider web.

There is nothing wrong with CDS if they're managed properly. As I said before, they are tons of companies making profits in the current CDS market. Only thing is you don't hear about them in the news.

For more on CDS, look up Prem Watsa(the Canadian "Warren Buffett") of Fairfax Financial Holdings (stock symbol: FFH).

 

[BuckNaked]

US May Break up AIG to Keep It Afloat

http://www.cnbc.com/id/29399177

US May Break up AIG to Keep It Afloat
Topics:Banking
Sectors:Financial Services | Banks
Companies:American International Group Inc
By: Reuters | 25 Feb 2009 | 11:57 PM ET
Text Size

American International Group and U.S. authorities are in advanced discussions over a radical restructuring that would split the insurer into at least three government-controlled divisions in an attempt to keep it afloat, the Financial Times reported on its website, citing people close to the situation.

AIG

The insurer's board is due to meet on Sunday and the company is on track to announce the overhaul as early as Monday, said the report, citing people close to the situation.

The restructuring, described by one insider as a "controlled break-up," could lead to the end of AIG's [AIG 0.46 0.05 (+11.95%) ] 90-year history as a stand-alone global insurance conglomerate.

It also could provide a template for carving up other troubled financial groups -- such as Citigroup [C 2.52 -0.08 (-3.08%) ] -- should they be brought under government control, the people involved said, according to the report.

Under the plan, the government would swap its current 80 percent holding in the insurer for large stakes in three units -- AIG's Asian operations, its international life insurance business and the U.S. personal lines business. A fourth unit, made up of AIG's other businesses and troubled assets, could also be formed, the FT reported.

In return, the authorities would relax the terms, or even cancel a large portion, of a $60 billion, five-year loan to AIG and convert $40 billion worth of preferred stock into shares in an effort to ease the company's burden, the Financial Times said.

If the plan goes ahead, AIG would remain as a holding company for now. But people involved in the talks say that that company could disappear if the government decides to recoup taxpayers' investments in the insurer by selling or listing the three divisions separately.

The final shape of the new rescue attempt -- the third government bailout of AIG in five months -- could still change as talks among company executives, the U.S. Treasury, the Federal Reserve and credit-rating agencies continue, the FT said.

A spokesman for AIG was not immediately available for comment.

US Senate Panel Sets March 5 Hearing on AIG

Separately, the U.S. Senate Banking Committee has scheduled a hearing on March 5 to examine government aid AIG, a source familiar with the hearing said on Wednesday.

Current DateTime: 09:03:43 25 Feb 2009
LinksList Documentid: 29399548

* AIG Talks to Chinese Insurers
* Citigroup Close to Deal with Govt.
* AIG Seeks More US Funds As Firm Faces Record Loss
* Handicapping the Bank 'Stress Test'

Federal Reserve Board Vice Chairman Donald Kohn is among several regulators scheduled to testify at the hearing to examine "what went wrong, government intervention and implications for future regulation," the source said.

Scott Polakoff, acting director of the Office of Thrift Supervision, and Eric Dinallo, superintendent of the New York State Insurance Department, also are slated to testify, the source said.

AIG was first rescued in September after bad mortgage bets left it on the verge of collapse. So far the U.S. government has provided $150 billion in Federal aid to the insurance company.

AIG is one of several companies the U.S. government rescued during tumultuous months for U.S. financial institutions. The government took control of Fannie Mae and Freddie Mac last
year.

Since September the U.S. government has injected capital into other struggling institutions including Bank of America [BAC 5.16 0.43 (+9.09%) ] and Citigroup.

In November AIG posted its largest ever loss, hurt by write-downs on assets linked to subprime mortgages and capital losses. Now, as AIG braces for a fourth-quarter loss that a source familiar with the matter said could be about $60 billion, it may come back for its third round of
government help. Such a loss would be the biggest in corporate history.

According to people close to the matter on Wednesday, three potential bidders are still looking at buying a large stake in AIG's key Asian life insurance unit.

Canadian insurer Manulife and Singapore sovereign wealth fund Temasek Holdings are considering offers for the unit, the sources said, although no formal bids have been submitted.
UK insurer Prudential is mulling whether to bid, a source said.

Whether to provide an optional federal charter for insurance firms -- similar to the duel banking charter system -- is being considered by U.S. policymakers.

At the moment insurance companies are regulated by states, most of which set insurance rates. Previously proposed legislation would have allowed insurance companies to set their own rates if they were federally chartered.

Big insurance companies have complained that regulations in various states are inconsistent and have hindered innovation. Critics fear a federal charter could result in higher rates and chip away at consumer protection.

 

[Slew Foot]

Originally posted by: BuckNaked
US May Break up AIG to Keep It Afloat

http://www.cnbc.com/id/29399177

US May Break up AIG to Keep It Afloat
Topics:Banking
Sectors:Financial Services | Banks
Companies:American International Group Inc
By: Reuters | 25 Feb 2009 | 11:57 PM ET
Text Size

American International Group and U.S. authorities are in advanced discussions over a radical restructuring that would split the insurer into at least three government-controlled divisions in an attempt to keep it afloat, the Financial Times reported on its website, citing people close to the situation.

AIG

The insurer's board is due to meet on Sunday and the company is on track to announce the overhaul as early as Monday, said the report, citing people close to the situation.

The restructuring, described by one insider as a "controlled break-up," could lead to the end of AIG's [AIG 0.46 0.05 (+11.95%) ] 90-year history as a stand-alone global insurance conglomerate.

It also could provide a template for carving up other troubled financial groups -- such as Citigroup [C 2.52 -0.08 (-3.08%) ] -- should they be brought under government control, the people involved said, according to the report.

Under the plan, the government would swap its current 80 percent holding in the insurer for large stakes in three units -- AIG's Asian operations, its international life insurance business and the U.S. personal lines business. A fourth unit, made up of AIG's other businesses and troubled assets, could also be formed, the FT reported.

In return, the authorities would relax the terms, or even cancel a large portion, of a $60 billion, five-year loan to AIG and convert $40 billion worth of preferred stock into shares in an effort to ease the company's burden, the Financial Times said.

If the plan goes ahead, AIG would remain as a holding company for now. But people involved in the talks say that that company could disappear if the government decides to recoup taxpayers' investments in the insurer by selling or listing the three divisions separately.

The final shape of the new rescue attempt -- the third government bailout of AIG in five months -- could still change as talks among company executives, the U.S. Treasury, the Federal Reserve and credit-rating agencies continue, the FT said.

A spokesman for AIG was not immediately available for comment.

US Senate Panel Sets March 5 Hearing on AIG

Separately, the U.S. Senate Banking Committee has scheduled a hearing on March 5 to examine government aid AIG, a source familiar with the hearing said on Wednesday.

Current DateTime: 09:03:43 25 Feb 2009
LinksList Documentid: 29399548

* AIG Talks to Chinese Insurers
* Citigroup Close to Deal with Govt.
* AIG Seeks More US Funds As Firm Faces Record Loss
* Handicapping the Bank 'Stress Test'

Federal Reserve Board Vice Chairman Donald Kohn is among several regulators scheduled to testify at the hearing to examine "what went wrong, government intervention and implications for future regulation," the source said.

Scott Polakoff, acting director of the Office of Thrift Supervision, and Eric Dinallo, superintendent of the New York State Insurance Department, also are slated to testify, the source said.

AIG was first rescued in September after bad mortgage bets left it on the verge of collapse. So far the U.S. government has provided $150 billion in Federal aid to the insurance company.

AIG is one of several companies the U.S. government rescued during tumultuous months for U.S. financial institutions. The government took control of Fannie Mae and Freddie Mac last
year.

Since September the U.S. government has injected capital into other struggling institutions including Bank of America [BAC 5.16 0.43 (+9.09%) ] and Citigroup.

In November AIG posted its largest ever loss, hurt by write-downs on assets linked to subprime mortgages and capital losses. Now, as AIG braces for a fourth-quarter loss that a source familiar with the matter said could be about $60 billion, it may come back for its third round of
government help. Such a loss would be the biggest in corporate history.

According to people close to the matter on Wednesday, three potential bidders are still looking at buying a large stake in AIG's key Asian life insurance unit.

Canadian insurer Manulife and Singapore sovereign wealth fund Temasek Holdings are considering offers for the unit, the sources said, although no formal bids have been submitted.
UK insurer Prudential is mulling whether to bid, a source said.

Whether to provide an optional federal charter for insurance firms -- similar to the duel banking charter system -- is being considered by U.S. policymakers.

At the moment insurance companies are regulated by states, most of which set insurance rates. Previously proposed legislation would have allowed insurance companies to set their own rates if they were federally chartered.

Big insurance companies have complained that regulations in various states are inconsistent and have hindered innovation. Critics fear a federal charter could result in higher rates and chip away at consumer protection.

Yup, money down the toilet

 

[GTKeeper]

Originally posted by: Bird222

Originally posted by: GTKeeper

1) They are not traded on an exchange. Right now I cannot look at ANY financial company's balance sheet and determine its worth. It simply cannot be done because off the books lie billions if not trillions of CDSs. So what if a company has 50 billion in cash on its books, if AIG fails (or some other entity) and I issued a CDS to someone who insured themselves of such an event, my 50 billion is wiped out instantly. This needs to change, we need to put all CDSs on an exchange.

This I don't understand. Do they not have to record these contingent liabilities on their books or at least include them in the notes to the financial statements? If not, how are they recording the premiums received on their books?

Precisely. They don't have to show what they are potentially 'on the hook for'. And that is why I won't put a penny into any financial stock right now. I simply don't know what they are exposed to.

They record premiums on their books for the sale of CDSs as revenue (just like any other financial service). Now they won't say what they wrote the CDS for. So things can change over night. This is PRECISELY why Bear Stearns was bailed out. When Geitner and company went into Bear on the night before they were sold, they went in saying 'ok, lets get them into bankruptcy and clean this mess up' but when they looked at the books they were absolutely SHOCKED to see how much CDS exposure Bear had, and not only that, but how many CDSs were written 'in case Bear fails'. A BK on Bear would have triggered all of those CDSs, and when that happens you immediately have to post collateral and pay the CDS (its like insurance). That would have started a bad chain of events. This is what happend when Lehman went down, it showed exactly how counter party risk hurts everyone.

Now, CDSs are not all bad, but naked CDSs (ones with 0 collateral or capital backing them up) are just side bets that hurt everyone.