Am I wrong about AIG?

[barracuda]

Here are most of the major transactions and asset divestitures by AIG since their trip to the toilet:

Oct. 2010 - AIG prices sale of shares in its subsidiary AIA for $20.5 billion in an initial public offering.



http://www.treasury.gov/connect/blog/Pa ... llion.aspx



In April 2009 it was announced that AIG was selling the 21st Century Insurance subsidiary to Farmers Insurance Group for $1.9 billion.[77] The sale included AIG Hawaii.



http://en.wikipedia.org/wiki/American_I ... _of_assets



Pacific Century Group had agreed to pay $500 million for a part of American International Group's asset management business, and that they also expected to pay an additional $200 million to AIG in carried interest and other payments



Ibid.



In June 2009, AIG sold down its majority ownership of reinsurer Transatlantic Re.

{Probably about 1.5 B]

Ibid.



AIG agreed on March 8, 2010, to sell its American Life Insurance Co. unit (ALICO) to MetLife Inc. for $15.5 billion in cash and stock by November 1, 2010.



Ibid.



On September 30, 2010, AIG announced an agreement to sell two of its life insurance companies in Japan, AIG Star and AIG Edison, to Prudential Financial for $4.2 billion in cash and $600 million in the assumption of third party debt to help repay some of the money owed to the U.S. government.[86]

On November 1, 2010, AIG announced it had raised $36.71 billion from the sale of ALICO and an initial public offering for AIA (which included Philamlife). The company will use the proceeds Federal Reserve Bank of New York credit facility and make payments on other interests owned by the government.[87]

AIG announced September 6, 2012, it was selling part of its stake, up to $2 billion dollars, in Asian insurer AIA Group Ltd. and plans to pay off more of its loans from the US government. The insurer's board also approved the repurchase of up to $5 billion dollars of shares of its common stock from the US government.[88]



Ibid, ibid, ibid.



In a February 28, 2012 press release, the New York Fed announced that the remaining securities in ML II were sold, and will result in full repayment of the $19.5 billion loan extended by the New York Fed to ML II and generate a net gain for the benefit of the public of approximately $2.8 billion, including $580 million in accrued interest on the loan



http://en.wikipedia.org/wiki/Maiden_Lane_Transactions



ML III LLC borrowed $24.3 billion from the New York Fed, which, together with an equity contribution of $5.0 billion provided by AIG (equity interest), was used to purchase a portfolio of U.S. dollar denominated collateralized debt obligations (CDOs) from certain counterparties of AIGFP.



http://www.newyorkfed.org/markets/maidenlane.html



The US Federal Reserve said it had sold the last of its investment in insurer AIG, turning a $17.7 billion profit for the public from its 2008 bailout.



http://news.yahoo.com/fed-nets-17-7-bn- ... 13230.html

This conservatively adds up to around 150B, and doesn't include a whole spate of various sales under 1B. Now on to the stock sales:

September 2012 – Treasury sold 554 million shares at $32.50 [$18,005,000,000]

August 2012 – Treasury sold 164 million shares at $30.50 [$5,002,000,000]

May 2012 – Treasury sold 188.5 million shares at $30.50 [$5,749,250,000]

March 2012 – Treasury sold 207 million shares at $29 each [$6,003,000,000]

May 2011 – Treasury sold 200 million shares at $29 each [$5,800,000,000]





http://blogs.wsj.com/deals/2012/09/11/a ... ince-2011/

Adding those up, I get $40,559,250,000

So the baldest accounting I can come to is a total figure of about $190B, not counting a whole bunch of crappy little sales around or under one billion which are referenced in the wiki article. And we now have a company with a market cap of ~40B, no longer too big to fail. Well done. Profit!

[JackRiddler]

.

I hadn't followed all that, so I should reassess. Here's an argument that AIG was the model "bailout" insofar as there was management decapitation & reorganization by the government.

Is it not true that all these AIG toxic assets are now on Fed and government books, and as far I see aren't being accounted in the bailout success arithmetic.

http://www.theatlantic.com/business/arc ... st/262281/

The Profitable Bailout?: Inside the Real Costs of the Saving AIG and Wall St.
By James Kwak

Sep 12 2012, 12:25 PM ET Comment


The government should be proud of its amazing rescue of AIG. But even this "good" bailout came at a steep price.

Reuters


This week, the Treasury Department sold another large slug of AIG shares that it bought in the dark days of 2008-2009, bringing government ownership below 50 percent for the first time since the financial crisis. The deal was priced at $32.50 per share, above the $28.73 break-even price as determined by Treasury, lending support to claims by government officials that the bailouts (a) made money and (b) were a good idea. The most emphatic cheerleading came from Andrew Ross Sorkin, who declared victory for the government and quoted a White House official saying of longtime critic Neil Barofsky, "Some people just don't like movies with happy endings."

If only things were so simple.

First, there's the little question of Treasury's arithmetic. More importantly, AIG was in many ways the "good" bailout, where shareholders were almost wiped out, the CEO was unceremoniously dumped, and taxpayers got most of the upside. In contrast, it was the government's treatment of the biggest banks that was the travesty.

On the arithmetic: Treasury calculates a breakeven price of $28.73 for the federal government's entire investment in AIG, including the emergency $85 billion line of credit extended by the Federal Reserve on September 16, 2008 and another $38 billion transaction the next month. But what happened next is that in November 2008 Treasury used TARP money to buy $40 billion in Series D preferred shares, giving AIG cash to pay down its credit line; in March 2009 Treasury used another $30 billion in TARP money to buy Series F preferred shares (while converting the Series D shares into Series E shares on more favorable terms to AIG), and also bought a big chunk of convertible preferred shares. (The details, as I could piece them together at the time, are here.)

Barofsky calculates a breakeven price of $43.53 for TARP's investments in AIG, which Sorkin doesn't contest. This is relevant for two reasons. First, it shows that the terms of the November and March restructurings were less good for taxpayers than the terms of the original bailout. Second, if you are trying to evaluate Treasury's decision to use TARP money--which was Barofsky's job, after all, as special inspector general for TARP--$43.53 is the relevant price. If you're evaluating all federal government involvement, then arguably $28.73 is the relevant price.

But only arguably, because if you're evaluating all federal government involvement, you have to evaluate all of it--including all the cheap money that the Federal Reserve used to keep the financial system afloat and protect the value of the assets that AIG unloaded onto the ... Federal Reserve. One consequence has been depressed rates for savers. Because I saved a lot of the money I made in my business career, negative real yields on bonds, money market funds, and savings accounts for the past three-plus years have cost me thousands if not tens of thousands of dollars. That's fine for me personally: I can afford it, and plenty of other people need money more than I do. But that money was part of the cost of shoring up AIG. More generally, you can't separate the accounting cost of the bailouts from the total costs of government policy, as brilliantly explained by Steve Randy Waldman (hat tip Yves Smith, who has additional issues with Sorkin).

The Sorkin/Treasury vs. Barofsky spat, however, obscures the true historical place of the AIG bailout. Many administration critics, including Barofsky and including me, have always said that the Federal Reserve's emergency action on September 16 was the right thing to do, since the alternative was, at minimum, a much more destructive firestorm of panic in the financial markets. And it was done on plausibly reasonable terms. It was more generous than the market would provide (since the market wouldn't lend AIG money on any terms), but it was relatively punitive and as good for taxpayers as could be hoped. The credit line had a high interest rate, the government got 80 percent of the company, and the CEO was forced to resign. It was precisely because of those harsh terms--in particular the effective nationalization of the company--that Treasury can claim to have turned a profit on the deal.

It was what came later that I and others criticized: The use of AIG to bail out investment banks like Goldman Sachs by closing out transactions on unfavorable terms for AIG (and taxpayers); the continued payment of large bonuses to traders at AIG Financial Products; and, most importantly, the kid-glove treatment of Citigroup, Bank of America, and the other megabanks that would have collapsed were it not for government support. Unlike AIG, they were given cash on Christmas-present terms while Treasury took only a minimal amount of equity, meaning that taxpayers had all of the downside and very little upside. The CEOs, who drove their banks over the cliff and into the waiting government safety net, were allowed to keep their jobs.

At the time (early 2009), administration supporters argued that the government couldn't take majority stakes in the big banks. That would be "nationalization," which is a big, scary word that sounds kind of like "socialism." Well, we nationalized AIG, and now the company is getting universal plaudits for its performance during the period it was owned by taxpayers. JPMorgan, by contrast, keeps noticing that more billions of dollars are slipping through its pocket, and Bank of America is struggling to keep its head above water. Above all, these non-nationalized banks are still doing a lousy job extending credit to the real economy, preferring to keep their money in cash.

Tell me again what the problem with nationalization was?

[Elvis]

---

I'm out of my league here, but I understand that the Federal Reserve and the Treasury Dept. each had stakes in AIG. The Fed's profits, I believe, stay with the Fed. As far as I can determine, the Fed returns the interest it charges the gov't on US treasury notes etc it buys, but not profits it makes from outside deals it makes, including deals made with the interest money from the Treasury notes, which money the Fed gets to use for a year before returning it to the Treasury.

Apparently taxpayers pay the interest (it's in the budget every year) on these Fed loans/treasury note purchases, then the Fed "returns" it to the Treasury after using it for a year to make other deals. But the taxpayer doesn't get their money back, it stays with the Treasury. A 'hidden tax'?

So I question the hurrah over these alleged Fed "profits" the "taxpayers" supposedly earned.


Also, the whole Greenberg family of fine companies & law firms deserves a thread it their own.

[barracuda]

Elvis, since the mid-1940's the Fed has been required to remit profits from securities to the US Treasury, aside from their operating expenses.

Here's more ideas on how that "profit" was made:

FRBNY established and funded Maiden Lane III in late 2008 to purchase mortgage-related securities from the derivatives counterparties of AIG's Financial Products unit. These counterparties had entered into derivatives contracts with AIGFP to protect themselves from losses on the securities that Maiden Lane III later bought. Under the derivatives contracts, they had the right to demand collateral when the market value of the securities fell, as it did in 2007 and 2008. More than $20 billion of the government's initial $85 billion loan to AIG went to make collateral payments under these derivatives contracts.

The government reasoned that cancelling the derivatives by buying the securities at full value was the cheapest way out of AIGFP's troubles. Maiden Lane III paid the counterparties almost $30 billion, $5 billion of which was from AIG and the rest of which was funded directly by FRBNY. In addition, the counterparties got to keep almost $35 billion in collateral that AIG had paid out on related derivatives contracts (much of which came from taxpayer funds). In total, the counterparties got more than $60 billion, which was approximately the face value of the securities.

The $6.6 billion profit calculation was based on the discounted price that Maiden Lane III paid for the securities in late 2008. Maiden Lane III had to pay only half of the purchase price for the securities, because the rest was covered by the collateral payments that AIG - with the help of taxpayers - had already made. The Maiden Lane III transaction and any profits it generated cannot be looked at in isolation; it was part of the larger AIG rescue, which is still ongoing with more than $30 billion in TARP funds still unpaid.

http://www.realclearmarkets.com/article ... 99848.html

And...

The Federal Reserve Bank of New York was able to purchase mortgage backed securities for less than half of their original value. We were told at the time that the Fed's purchase was bound to result in taxpayer losses because the securities were essentially worthless and that the Fed was doing this simply to keep AIG from going bankrupt. All trading in the securities was halted and there was no free market mechanism that could properly value the shares. We were basically left at the whim of the federal government and asked to trust them. I specifically remember hearing that AIG was "dead in the water" and would soon go out of existence. Now it turns out that the Fed essentially robbed AIG of its mortgage backed securities. A couple of years later and the Fed is magnanimously agreeing to sell those securities at an extreme profit. A couple of years later and those "toxic" assets look pretty good to a lot of people. So we have to ask, was the Fed just stupid or were Fed officials lying to us? Either way, all of those associated with the Fed who were involved in the purchase of the mortgage backed securities should be indicted for securities fraud. Executives at publicly traded companies have been indicted, tried and imprisoned for securities fraud with far less evidence than what exists against the Fed. Why is the Department of Justice not filing charges against the Fed? Are they just protecting their own? It sure seems like it to me.

http://madwelshman-unknown.blogspot.com ... ll-in.html

[Wombaticus Rex]

A couple of years later and those "toxic" assets look pretty good to a lot of people. So we have to ask, was the Fed just stupid or were Fed officials lying to us?

Bears repeating: we're in a whole different world, the stock market is clinically dead and private / institutional big money is desperately trying to get out of equity with essentially nowhere to go except for what used to look insanely risky -- it's the only yield in town in 2012.

Assets are still undeniably and almost entirely toxic...remarkably, that just doesn't matter....it's still a better upside than getting eaten to death by HFT every time you make a move.

Also, of course, Federal Gov officials across the board have pretty blanket protection from any legal statutes...goes triple for the Fed.

[semper occultus]

^^

...aren't corporations - the blue-chip ones - the only solvent players out there at the moment ( seen Apple's bank account recently ? )

institutions will still be buying into that equity but one would expect increasingly via dark-pools rather than the corrupt stock exchanges you allude to......

[Wombaticus Rex]

^^Sure, but the returns they're paying don't happen in secret and that's all I'm talking aboot, as the Canucks say. You're 100% right that blue chip stocks are basically the only solvent players out there in the market, but the pressure comes from the fact there's a limited number of shares that happens to be smaller, by orders of magnitude, than the number of people who would like to buy in.

Thus your margins become very, very weird places. My understanding of dark pools is that it's a regulator-built means for the bigger funds -- hedge and pension -- to take & change positions without being in the WSJ the next day. I also gather that all of the HFT firms / contractors are also involved with the IT behind dark pools and there's endless FUD about which of them is being gamed. Logic suggests, gently, that all of them are being gamed and it's mostly a matter of extent.

I agree with the trend you identify whereby stock exchanges are "corrupted" and mostly abandoned by serious players.

Bill Gross puts it clearer than I could -- well, maybe, but still: http://www.pimco.com/EN/insights/pages/ ... gures.aspx The whole piece is worth reading, and has the added bonus of a titan of capitalism being really frank about fucking the US working class as a core driver of elevated yields in equity and of course, profit margins.

[Elvis]

Elvis, since the mid-1940's the Fed has been required to remit profits from securities to the US Treasury, aside from their operating expenses.

Here's more ideas on how that "profit" was made:

Thanks, very much, for setting me straight. The bastards seem to make things so murky, I can never figure out what they're doing. I'm bad at math anyway, I could never be an economist.

I did figure out insurance fraud at age eight, moments after someone explained insurance to me. I gather that AIG more or less insured the toxic securites, so the whole thing sounds like collusion between AIG and Goldman Sachs et.al. to commit, among other crimes, insurance fraud.

I'll need to read Wombaticus' links to get at why the stock market is dead. Won't some stocks remain strong?---companies that sell things people use every day? Proctor & Gamble for example.

I found my copy of "Secrets of the Temple" and will dig into that, too.

[Wombaticus Rex]

Definitely, corporations with steady marketshare and huge cash flow will always be paying dividends. The problem is, Fed-set zero percent interest rates have a damaging effect on the overall economy so those returns will keep dropping. Something Henwood has discussed is the "peak efficiency" wall of mergers & assaquisitions, outsourcing races to the bottom, and endless leveraging. We are definitely through that looking glass now. Energy costs are scaling up sharply and are projected to continue doing so indefinitely with no solution in sight: this too depresses returns. Even your Apples don't want to pay dividends, they want to buy back their own stock and keep their assets parked in cash.....waiting. Or park it into US bonds next to PIMCO, Blackrock, Sama, and the People's Bank. Or: investing it into new, wholly owned critical infrastructure, with an eye towards leasing excess capacity to increasingly dependent local cities and government. I expect to see major corporations taking on an increasingly gov-flavored role in the future, but that's hardly an original point. (Then again, neither is Love The Neighbor.)

Something I'm just starting to appreciate is how so much of the real money wrapped up in derivatives just didn't mature until recently and most of it still hasn't. Even a crisis like the Great Housing Collapse isn't going to fast-forward any contracts...they're out there waiting. When captains behind the island-sized ships of a state pension fund start thinking they're going to lose everything for years to come, they start to consider some "crazy" -- risky -- alternatives, which is probably why junk bonds are exploding while Germany can't sell guaranteed money back.

Gonna be an interesting motherfucking finish to 2012!

[Wombaticus Rex]

TL;DR THEY CALL THEM THE 1% BUT THEY'RE ALL RATS!!! RATS IN A CAGE!!! AND THAT CAGE KEEPS SHRINKING EVERY YEAR!!! YOU KNOW HOW THIS MOVIE ENDS!!!

[JackRiddler]

TL;DR THEY CALL THEM THE 1% BUT THEY'RE ALL RATS!!! RATS IN A CAGE!!! AND THAT CAGE KEEPS SHRINKING EVERY YEAR!!! YOU KNOW HOW THIS MOVIE ENDS!!!

I don't. Who's directing? Kubrick, Spielberg or M-Night?

[JackRiddler]

.

(Okay, I'm going to wade back in here after my initial embarrassment of speaking in blowhardese when I had little idea of how the AIG management has gone since 2009 or so.)

And...

The Federal Reserve Bank of New York was able to purchase mortgage backed securities for less than half of their original value. We were told at the time that the Fed's purchase was bound to result in taxpayer losses because the securities were essentially worthless and that the Fed was doing this simply to keep AIG from going bankrupt. All trading in the securities was halted and there was no free market mechanism that could properly value the shares. We were basically left at the whim of the federal government and asked to trust them. I specifically remember hearing that AIG was "dead in the water" and would soon go out of existence. Now it turns out that the Fed essentially robbed AIG of its mortgage backed securities. A couple of years later and the Fed is magnanimously agreeing to sell those securities at an extreme profit. A couple of years later and those "toxic" assets look pretty good to a lot of people. So we have to ask, was the Fed just stupid or were Fed officials lying to us? Either way, all of those associated with the Fed who were involved in the purchase of the mortgage backed securities should be indicted for securities fraud. Executives at publicly traded companies have been indicted, tried and imprisoned for securities fraud with far less evidence than what exists against the Fed. Why is the Department of Justice not filing charges against the Fed? Are they just protecting their own? It sure seems like it to me.

http://madwelshman-unknown.blogspot.com ... ll-in.html

That's a mad Weslshman, alright. How can anyone write stuff like this? It's epic historical revisionism. (And never mind other reasons you might think the Fed should go to prison.) AIG had put itself out of business. They sold credit-default swaps to any willing buyer, even multiple CDS on the same bond, even to pure speculators who were making naked purchases (i.e., who didn't own the bond they were insuring). In the end-stage of the bubble, the market makers created collateral debt obligations by piecing together the lower tranches of mortgage-backed securities, i.e. they wanted to unload the high-risk portions of their MBS, the high-return crap that they generally had not yet sold to patsies. AIG sold CDS on those too, although in many cases the bankers were creating the CDOs knowing they would fail, and arranging to bet against their own products (or having the J. Paulsons do the same). The AIG financial division elite trader-assholes in London under Joe Cassano either had no clue about these CDOs, or were wittingly engaging in deals they knew would explode just for their own fees and bonuses. Who knows if they were getting kickbacks from the counterparties (this would be as good as impossible to catch). Either way, Cassano's crew was either criminally negligent (willful, wanton, whatever) or engaging in criminal fraud. I say criminally negligent because AIG didn't keep enough reserves on hand to cover these CDS bets, so when the MBS market tanked (which it did, a piece of history omitted) and a CDS flood came due, AIG was out of cash. That's bankrupt. Treasury and Fed then stepped in, absurdly, to pay off AIG's bills to Goldman et al. They found a way to put the rest of the company back into business. (Disgusting.) And this guy is saying they shouldn't have even taken possession of AIG-owned securities that were, in fact, worthless at the time. (Who the fuck was going to buy mortgage market derivatives at any price? Should the government have flogged these extremely overvalued assets to Goldman for 2 cents on the dollar? I know, they could have even given Goldman the money to buy it at that price, right?) It just goes to show you, governments can assist banks in heists and getaways to the tune of trillions, afterward the mighty oh-so capitalist banks will still bemoan that they have been ripped off by the sosha-list government. Is there a downside to doing so? Ha!

.

[JackRiddler]

Definitely, corporations with steady marketshare and huge cash flow will always be paying dividends. The problem is, Fed-set zero percent interest rates have a damaging effect on the overall economy so those returns will keep dropping. Something Henwood has discussed is the "peak efficiency" wall of mergers & assaquisitions, outsourcing races to the bottom, and endless leveraging. We are definitely through that looking glass now. Energy costs are scaling up sharply and are projected to continue doing so indefinitely with no solution in sight: this too depresses returns. Even your Apples don't want to pay dividends, they want to buy back their own stock and keep their assets parked in cash.....waiting. Or park it into US bonds next to PIMCO, Blackrock, Sama, and the People's Bank. Or: investing it into new, wholly owned critical infrastructure, with an eye towards leasing excess capacity to increasingly dependent local cities and government. I expect to see major corporations taking on an increasingly gov-flavored role in the future, but that's hardly an original point. (Then again, neither is Love The Neighbor.)

Something I'm just starting to appreciate is how so much of the real money wrapped up in derivatives just didn't mature until recently and most of it still hasn't. Even a crisis like the Great Housing Collapse isn't going to fast-forward any contracts...they're out there waiting. When captains behind the island-sized ships of a state pension fund start thinking they're going to lose everything for years to come, they start to consider some "crazy" -- risky -- alternatives, which is probably why junk bonds are exploding while Germany can't sell guaranteed money back.

Gonna be an interesting motherfucking finish to 2012!

Yeah, your bolded part is what all the tech bigs are currently doing, isn't it. It won't surprise me if Facebook's next move is to buy into utilities. Or water. Or farmland (If so, watch the fuck out.)

Thank you for this, and your other analysis on this thread. This is also why the "rental society" (the imminent arrival of securities backed by rental revenue streams, now that private equity is buying foreclosed homes in bulk) will seem so attractive to the same patsies who will buy them from the same banks that sold them MBS, even though they know now that they were patsies with the MBS. (But, but, the spread is higher!)

But how were governments going to serve the corporations in the last few years with anything but low interest rates? You know this, they give them money for zero and set Treasuries for 3. (They also pretend that there will be lending to productive purpose at low interest, ha ha.) The fundamental problem to me seems to be that old tendency in the rate of profit to decline in the long term. This is why the turn (already for more than a decade, since the 2000 bubble pop) to fixed returns. Seems to me what you're seeing here is not a fundamental reasoning that higher interest rates would be better for the market, but that the corps are hungry for the fixed returns to be higher. Or I guess it's the personal spread between the cost of borrowing and the return on lending, and not the rate per se that concerns them. And never mind what it takes for the public sector to keep up its side: Sell parking meters, sell the post office, sell Yellowstone, securitize teachers' grades and sell their organs, institute forced labor for student loan default, institute an air tax.

However, I suspect you know a lot more about the current mechanics than I do, so let us know what you think. How could they have done as well in weathering through (pretending their way through) the crisis, if they had kept interest rates higher, for one thing?

[barracuda]

That's a mad Weslshman, alright. How can anyone write stuff like this? It's epic historical revisionism. (And never mind other reasons you might think the Fed should go to prison.) AIG had put itself out of business. They sold credit-default swaps to any willing buyer, even multiple CDS on the same bond, even to pure speculators who were making naked purchases (i.e., who didn't own the bond they were insuring). In the end-stage of the bubble, the market makers created collateral debt obligations by piecing together the lower tranches of mortgage-backed securities, i.e. they wanted to unload the high-risk portions of their MBS, the high-return crap that they generally had not yet sold to patsies. AIG sold CDS on those too, although in many cases the bankers were creating the CDOs knowing they would fail, and arranging to bet against their own products (or having the J. Paulsons do the same). The AIG financial division elite trader-assholes in London under Joe Cassano either had no clue about these CDOs, or were wittingly engaging in deals they knew would explode just for their own fees and bonuses. Who knows if they were getting kickbacks from the counterparties (this would be as good as impossible to catch). Either way, Cassano's crew was either criminally negligent (willful, wanton, whatever) or engaging in criminal fraud. I say criminally negligent because AIG didn't keep enough reserves on hand to cover these CDS bets, so when the MBS market tanked (which it did, a piece of history omitted) and a CDS flood came due, AIG was out of cash. That's bankrupt. Treasury and Fed then stepped in, absurdly, to pay off AIG's bills to Goldman et al. They found a way to put the rest of the company back into business. (Disgusting.) And this guy is saying they shouldn't have even taken possession of AIG-owned securities that were, in fact, worthless at the time. (Who the fuck was going to buy mortgage market derivatives at any price? Should the government have flogged these extremely overvalued assets to Goldman for 2 cents on the dollar? I know, they could have even given Goldman the money to buy it at that price, right?) It just goes to show you, governments can assist banks in heists and getaways to the tune of trillions, afterward the mighty oh-so capitalist banks will still bemoan that they have been ripped off by the sosha-list government. Is there a downside to doing so? Ha!

.

Well, it is a conspiracy theory, I'll give you that, though the reality is that the CDOs in the Maiden Lane portfolios - which were presumably the worst performing assets held by AIG - turned out in the middle run (less than four years later) to be of significantly higher value than anyone might have reasonably expected.

Of course long-term value is semi-meaningless if it bankrupts you in the short-term. But the Fed is in no real danger of insolvency, so they had the luxury of an abiding perspective on the thing. Just maybe they knew a good thing when they saw it, helped along by their ability to lend to their customers for these objects money at zero interest.

I have a hard time hating on ABS CDOs, at least good ones, generally speaking. I mean, they are at bottom organically tied to real properties. Properly manicured and maintained asset-backed securities are and have been a significantly better investment than equities for the last ten years or so. And they offer a huge variety of returns to choose from. The problem with investing in them - like investing in anything - is transparency and diligence by the purchaser with regards to the underlying asset. Assets that appeared severely distressed during the extreme downturn of '08 look to be low-hanging fruit in the '12 world of ZIRP, because the tentative purchasers of the tranches may have access to easy cash, and the originating mortgages may be performing better for any number of reasons.

The Maiden Lane III commercial RE CDOs were the first to go and the mezzanine the last, if that tells you anything. What it tells me is that these portfolios were cherry-picked as you might expect, with the least performing asset classes remaining on the tree til it became apparent that the yield-chasers would bite for the resale.

And here's where I'd differ with Wombat somewhat...

...we're in a whole different world, the stock market is clinically dead and private / institutional big money is desperately trying to get out of equity with essentially nowhere to go except for what used to look insanely risky -- it's the only yield in town in 2012.

Assets are still undeniably and almost entirely toxic...remarkably, that just doesn't matter....it's still a better upside than getting eaten to death by HFT every time you make a move.

The volume of the S&P in the lead up to the '08 disaster wasn't wildly different from that we see today. One huge reason the global financial crisis happened when it did was the reckless and uniformed actions of the yield-chasers. The stock market's been a dead end for at least ten or twelve years for anyone needing to get a consistent return over five percent. (I used to get that and more at my local bank's savings account - those were the days.) And so as the risk-welcoming investors became a larger and larger group, these mad inventions were created until we finally get to the insanity of independent counterparties hanging naked derivatives over every asset class one can imagine, a situation which hasn't changed a whit in the last four years. The real difference is that you don't have to lend money to make your nut - you can arbitrage the various QE phases into enough money to at least keep the lights on at the desks of the rapacious instrument dealers.

Fuckers.

[JackRiddler]

Well, it is a conspiracy theory, I'll give you that, though the reality is that the CDOs in the Maiden Lane portfolios - which were presumably the worst performing assets held by AIG - turned out in the middle run (less than four years later) to be of significantly higher value than anyone might have reasonably expected.

Well, you said it. Besides which, if AIG had its druthers which assets do you think they'd have wanted to pass on to the Fed? And now the assets have recovered under the presumably inflated current market conditions, with all the QE-ZIRP attached. (So the Fed is responsible for the current pricing of its asset sales. No wonder if they had better insight into what would happen. Rather than the Welshman's "stolen assets" that turned out to be more valuable than originally claimed, the Fed is selling these on a false peak that they themselves engineered. There's your likelier conspiracy, imho.) We're still only halfway through Geithner's estimate of the foreclosure wave. Fannie, Freddie and REOs are just beginning bulk sales of all the properties they've been holding off the market. Case-Shiller is still 20 percent over inflation (albeit CPI is another fake). We'll see where this paper is in another four years, or maybe already in six months.

Anyway, I appreciate all the research work and evident expertise you've put into this thread.