Wednesday, March 25, 2009

Overallotment: March 25

  • Must Read 1: Don't take our word for it: CRE crisis accelerating, to cause hundreds of billions of more losses to banks (WSJ)
  • Must Read 2: Law of unintended consequences strikes again: two AIG Paris departures could trigger defaults on $234 billion in derivative contracts, forcing European banks to raise billions to cushion from potential losses (WSJ)
  • Deposed EU president proclaims U.S. response to global recession is "road to hell" (FT)
  • Nikkei rises, Yen falls for second day on continuing fears Japan's economy tanking (Bloomberg)
  • US Retail investors' flight to safety continues: $250 billion in bank deposits for first nine weeks of 2009 greater than all of 2008 (FT)
  • GM bondholders stall negotiations ahead of March 31 deadline (FT)
  • ...In the meantime, Steve Rattner does what the US does best: beg for more $$$ (WSJ)
  • AIG ILFC aircraft leasing unit not feeling the love of the "all is well" market rally (Bloomberg)  
  • John Gapper: the need to share the bill for bailouts and why some banks are too big to save (FT)
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Anonymous said...

WSJ is not serious is it? The departure of two clowns can cause a default on $234B? Bring it on I say.

Anonymous said...

Tyler/Cornelius or anyone else: Do you have any input on how difficult it is to unwind AIG's remaining open book ($1.6tril estimate)? I keep hearing that only AIG traders can do this feat, but don't entirely buy it. Would it be that difficult to coach newly hired structured credit/derivatives traders with AIG consultants? Granted each contract is highly custom, was under impression if you had a decent relevant background, it wouldn't take very special talent to optimally unwind. Thanks.

Anonymous said...

if these are CDSs on supersenior tranches of whatever, and banks are using the precarious existence of AIG to skirt capital requirements, regulators should have never allowed that game in the first place and in any case should shut it down right away.

if the departure of these 'executives' could cause a selective default of a portion of the book this could be a blessing in disguise -- it could give AIG plausible leverage to erase part of this game.

or, if the regulators wanted, it would be supercheap for them to waive whatever cap requirements are currently being held together by the precarious balance of the US Treasury versus tail risk.

Anonymous said...

> hundreds of billions of more losses to banks

WSJ is saying tens of billions.
WSJ is saying that securitized CRE mortgages are a $700B market.
'hundreds' of billions would be a total loss of around 30% after recovery. and that's not counting
you need a depression scenario for that.
even then, a lot of this stuff is held outside banks.

tens of billions is certain.

Anonymous said...

WTF does the WSJ know? AIG in some cases does not even know who their counterparties are, and therefore cannot even begin to assess damages.

Trust me, when the dust settles whatever is left of the back of AIG's house will be dealing with losses that exceed 3.75 - 4 Trillion, easy. How they spin this is another matter all together. They will split off all divisions and burden certain cost centers within with the load. These divisions will be scuttled. AIG is over, the brand has no value in the future.

Good night.

Anonymous said...

Setting aside MTM, HTM and other accounting issues, don't the crunched numbers suggest that the MBS (even with a pretty steep default level on the underlying mortgages) generate sufficient cash flow to pay off the holders of the AAA stuff? Isn't this what most banks hold (as opposed the hedge funds)?

Anonymous said...

You mean AIU Holdings right?

Completely Different. Pay No attention to the man behind the curtain.

Anonymous said...

The employee blame game starts.

"Oh, Ian Wonderstein left the company and we have no idea how to unwind his trades. As a result we had an additional $500 Billion dollar loss this quarter. Sorry."

More TARP money comes into AIG, is laundered out to newly formed subsidiaries. Then AIG declares bankrupcy and the US taxpayer never sees the TARP funds again.

Happy daze.