Item 1, dated: 3/2/09:
Who’s Really Being Propped Up in the A.I.G. Bailout? - Executive Suite Blog - NYTimes.com
Item 2, dated 3/4/09:
Talking Points Memo | Cantwell: Where's the AIG Money Going?
We aren't even being told who the couterparties to AIG are!!!? WTF!?!?!
Of course AIG is broke it is why they got Govt. help. That govt. money should only be going to pay off CDS's that are active and that directly own the underlying security. That money can also go to pay back the premium on active, naked CDS's.
Go blow smoke up somebody else's ass.:biggrin1: I think Geitner would like to hear from you.
Now seriously, no really dude, good bye.
nobody is blowing smoke up your ass.
everyone knows who the counterparties are primarily.
Goldman Sachs
Merrill Lynch
Royal Bank of Scotland
Deutsche Bank
and dozens of other massive banking and financial institutions in the US and Europe.
Just because they are not giving them to you personally, does not mean nobody knows who they are.
i guarantee you, everyone in a position of power knows.
You cannot just say we are not going to pay this or that and once again, you do not understand the concept of naked selling. you cannot just give back the premiums and void the contracts that AIG wrote. it is illegal and in contravention of market laws. AIG entered into exchange sanctioned, legal trades on naked swaps with people who bought them precisely for the leverage factor. AIG *OWES* this money to the counterparties who paid the premium to receive the leveraged derivatives.
This money must pay off *ALL* the contracts naked and owned that AIG sold.
you cannot wipe out several years worth of buying, trading, selling, ownership and leverage among hundreds and thousands of institutions and firms simply by saying Poof!
It does not work that way.
You cannot just "reset" everything like a video game.
The positions must be unwound, the counterparties paid off, the money acts as liquidity for the gradual disposal of payments, obligations and debts.
You cannot just give back the premium, since the premium was already spent and is gone, and the whole point of selling premium, or writing options is that you are taking a big risk in exchange for money now. Your risk is that you believe your position is correct, and you know full well your losses could be catastrophic if you are wrong. You are not protected, you are not hedged, and you will have to pay someone back if you are wrong, and that person is the counterparty.
If you sold someone the right to by from you a car at the price of $10,000, you are responsible to the buyer tp deliver him that car at the price of 10,000 should he choose to exercise that option.
If you already own the car, then it is not such a big deal. You are covered.
If you do not own the car, then it is a big deal. You are "naked".
leaving aside the more complicated part of selling options, such as time value, beta, etc.
If you sold the option to buy the car at $10,000 to the buyer for $500, since you figured the car would not be worth more than that by the time the option expired or if he chose to exercise the option, you have one way to profit.
1. The value of that car never reached 10,000 or over, causing the option to expire worthless.
that is the danger of writing naked options. buyer would likely not call the option until the value of that car is over $10,500 which is his profit point.
If you own that car, there is little problem since it is "covered".
if the value of the car drops to 9,500, you breakeven. If the value of the car rises to 10,500 and he does not exercise, you have profited 500. If the value of the car goes to $15,000 he will call the option in at 10,000. you must sell him your car at the agreed upon price of $10,000. so you made $500...but he made $4500 (and it is his car whose value is determined by the market)
that is if youu are covered.
If you are naked, your losses are virtually limitless on the upside or downside, depending which side of the trade you have sold.
you do not get to wipe the naked option off the books. You have a legal contract to provide the buyer the car, at the price you agreed to sell it to him for...$10,000
If the price has gone to $50,000 you must provide the buyer with the car at his agreed upon price of $10,000. you already have your $500 in premium that you sold him the option for, but you have no car to give him at the agreed upon price.
So, you must buy the car...on the open market, where it is now selling for $50,000.
The buyer who you have a legal contract with, wants the car, so he can sell it for what it is getting on the open market ($50,000)
you, as the counterparty, are legally obligated to sell him that car at $10,000. Yet you only have $500 and do no own the car.
you need to come up with $49,500 to purchase that car, then sell it to the counterparty at $10,000. That is a loss of 39,500. in exhange for the $500 chance you took on the value of the car not increasing past a certain value.
Now imagine a car whose value is *STILL* Rising, and everyday its value is growing, the counterparty is demanding his legal right to buy the car from you at $10,000, and everyday, the value of that car is going higher, 51,000, 52,000, 53,000, 55,000, 58,000, 62,000
You have no money, and you have no cars to sell.
Now imagine that you have sold 1,000 options on 1,000 of the same type of car ( or varying ones at lower prices)
and everyone wants their car, because you legally are obliged to sell them that car. If you cannot sell them the car, they have lost not only the money they paid you for the right to buy it, but they have also lost the massive profit they legally earned and you are obliged to pay them.
your brother keeps giving you money to continue buying the cars and selling them to the coutnerparties to honor all the contracts you sold...but at the same time, the value of those cars keeps rising and rising.
If those cars represent the insurance that all these buyers bought, against financial difficulties that they would be exposed to in the car buying market and that car buying market has now exploded, these people need that money as their protection.
Now do you understand why you cannot just give someone back the premium?
