F**k AIG, F**k Their Counterparties and F**K The Whole Cavalry They Rode In On!

I think you know how we feel about this.

By Hugh Son and Zachary R. Mider

Feb. 26 (Bloomberg) -- American International Group Inc. may get a backstop from the U.S. to protect against further losses on credit-default swaps, according to a person familiar with the matter.

The federal guarantees may be included in New York-based AIG’s restructured bailout, which the company plans to disclose next week with fourth-quarter results, according to the person, who declined to be identified because the talks are private.

Regulators who saved AIG in September feared that a collapse of the insurer, which sold swaps to banks including Goldman Sachs Group Inc., would spread losses throughout the global financial system. In November the U.S. committed $30 billion to retire some of the contracts tied to subprime mortgages, while not addressing other swaps tied to corporate loans and European debt.

“Counterparties around the world continue to have significant exposure to AIG, and market conditions continue to be fragile and sensitive to the potential disorderly failure of AIG,” the Federal Reserve said in a report in November.

AIG provided protection on more than $300 billion of assets through credit derivatives as of Sept. 30. Credit-default swaps pay the buyer face value on their debt holdings in exchange for the underlying securities if the borrower fails to meet its obligations. It wasn’t immediately clear how many of the swaps would be backed by the U.S., and talks are continuing, the person said.

AIG has posted four straight quarterly losses on swaps tied to U.S. home loans.

Comments

[williambanzai7]

Derivatives, the final financial frontier. These are the voyages of the TARP Enterprise.
It's open ended mission: to explore strange new financial weapons of mass destruction, to seek out
new write downs and new financial black holes, to boldly bail where no free market capitalist has bailed before.

Captain Hank at Planet AIG: "Beam me up Ben, there's no intelligent life here."

First Officer Bernanke: "Curious Captain, these AIG managers seem to think they can raise $130 Billion Federation Credits through a "fire sale" (is that what you call it) in the worst market for financial assets ever seen in this galaxy quadrant.

Engineer Cox: Perhaps we should'nt be tampering with these delicate instruments.