Credit Default Swap is another kind of derived credit entity in the pecuniary market. With the securitisation an imposing method for revenue generation and assigning funds to where there is a complete paucity of them, the swapping market emerged as another astonishing one.
The securitised bonds in form of Collateral Debt Obligations were betted upon whether the source of fund on these bonds would default or not. The investment banks selling the investment packets used to go on an agreement with insurance companies on the bonds they were selling to the public.
How stupid it all sounds that even the company selling investments is not sure if the investment would turn sour or not and surmounting over that it is insuring its own financial position in the process. Well this was the trick that brought down one of the biggest insurers in the world, the American International Group and its story still lies stuck on the blood of tax payers whose hard earned financial savings, that was presented to bail out the AIG group and in turn as many call it the back door bailout program of the Investment giants on the either side of the Atlantic.
Even if we do not go in to the detail of how the Credit Default Swap or the contract how the investment companies insured their Credit Debt Obliations with the AIG occurred but the fact that lies hidden well beneath all this that the companies were actually betting on the house buyers to default and the insurance companies betting that they won’t and the common man who lied between them stood at the stance wherein his decision were out of his dreams and he could only see his saving plummeting and disappearing without any trace.
Well these credit write downs might not seem as the most intelligent written documents however they might lead up to the biggest public awakening movement ever. Recently with the inside out declarations of the AIG bailout program the real picture behind all this is coming out. Neil Barofsky, the special inspector general for the Treasury Department’s Troubled Asset Relief Program is presented the recent report with all the mal functionalities that were carried out during the AIG bailout that started at around 60 billion USD but went up to 200 billion USD, the highest any company can expect to furnish from tax payers accounts for its own actions that were of a product of malcontent distrust and betting practices.
Now the bailout program that was finally undertaken and device by the Bush treasury Secretary Henry Paulson was a complete trash and a beaming lit to the whole American system. Recently with the upcoming reports the truth behind everything is coming out.
Starting with the companies that had junk(in form of Credit Debt Obligations) insured with AIG even if the credit ratings of their assets have depreciated to the BBB or maybe BBB- still, interestingly, all their assets got every penny they were supposed to get back. Moreover the government created a special entity of the AIG called Maiden Lane only to buy all the troubled assets from the investment banks. The story of the day was that when the credit system blew up due to misappropriations and miss-interpretations of the banks they were only to be saved by getting every penny they had ensured with every penny and no looses recorded.
Someone please tell Warren Buffet it was not just the TARP that saved his lovely Goldman Sachs it was the only reason that saved it through what people now call the back door bailout.
Back door bailout turned out to be the method in which the companies that had been insured by the AIG got their full stakes without any form of negotiations. The money they were to get as insurance was paid them in full. The reason that Paulson gave and which Tim Geithner is still defending turns out to be that the French companies who had been in a contract with the insurance giant that they were not ready for any form of negotiations against full payment of the bonds.
Societe Generale confirms this case however with the recent role reversals a number of new issues are building up. Some companies are speaking out that no negotiations were ever tried in the bailout of the Credit Default Swap with AIG. It was done on one dollar to 100 cents basis.
Societe Generale received the most, $16.5 billion, including collateral posted by New York-based AIG and payments from Maiden Lane III, the vehicle backed by the New York Fed. Goldman Sachs got $14 billion, and Deutsche Bank AG, based in Frankfurt, got $8.5 billion.
In his remarks, Geithner said, “everyone should realize that because of the actions of the Treasury and the Federal Reserve, the American financial system is now in a position where it can provide the credit necessary for economic growth.”
Henry Paulson approved payments of $62.1 billion, or full value, to 16 AIG counterparties, including Goldman Sachs Group Inc., in November 2008 to retire contracts in which the insurer promised to reimburse the banks for declines in mortgage-linked holdings, according to a Nov. 17, 2009, Barofsky report. The French banking regulator “forcefully asserted” that firms in the country couldn’t make concessions outside of an AIG bankruptcy, Barofsky said in that report.
Well even if we justify the bailout then how the great leaders going to justify the cash throw they exercised only to build up back the strength of the banks that have been responsible for blowing off the system.
Standing on top of all this another controversy of Henry Paulson being related to none other than Goldman Sachs and his imposing architecture in helping the investment giant to regain what it had lost in the turmoil. Paulson is an alumnus of the same and has been accused of deliberately letting the banks get their full share through the back door bailout even though they were not worthy of it.
Mergers and acquisitions are always written in with fraudulent activities and high staking manhandling of funds be it the Bear Sterns takeover of JPMC or the merger of Bank of America Merrill Lynch but every entity established its fortune on the fall and fall of the largest insurance group.
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