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AIG - Derivatives gone amuk



October 12, 2008 – Comments (4) | RELATED TICKERS: AIG

Big Picture has a post about some the private documents of AIG from 2007

Seems to be there is going to be huge grounds for lawsuits over the lack of disclosure, but then, no point if there is nothing to sue...

And then again, I had not heard about these derivative things until about two years ago.  It was the fall, I think November, and with only perhaps a paragraph on information on them I thought they were so serious, I stopped what I was doing and put a whole weekend doing research to try and learn more about them.  

There was only one conclusion, these things start unwinding and it is going to be ugly.  What did the total value of these things get up to?  Something like $700 trillion dollars.  Well, if only 1% go bad that's $7 trillion dollars of problems...

I am going on fading memory here, but I think AIG was leveraged something like 100 fold, which in my mind means they get wiped out with just 1% problem mortgages, not hard to do when you loan cleaning ladies half a million dollars...

4 Comments – Post Your Own

#1) On October 12, 2008 at 1:43 PM, dwot (29.24) wrote:

Yves has an interesting link to a story estimating that the Lehman derivatives were hedged so the losses are minor, $6 billion compared to $400 billion feared.

My instincts are that if they are hedged, the $400 billion still has to come from somewhere and this is still a problem...  So, the banks aren't in trouble for having to pay to Lehman, but to the individual investors because of the hedges?  And what happens with ones that are insolvent?  I think still way too uncertain.

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#2) On October 12, 2008 at 2:00 PM, dwot (29.24) wrote:

This one, talk about wiped out...  The luxury home and the quarter million and year job both gone and with it taking all accumulated wealth...

But, read the story closer, 1/4 million per year plus hefty bonuses for a construction management job?

The bubble allowed gross, gross, gross wage inequity.

And pardon my brutality, but from the start this guy's personal management skills are a disaster.  Explain to me how those kinds of management skills translate into job worth?

When you have this kind of job wage inequity you get the exact brutality of the questioning, and worse...

I suspect the social havoc from gross inequity is about to accelerate...

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#3) On October 12, 2008 at 4:23 PM, goldminingXpert (28.83) wrote:

Let's not bash AIG too much until after OPEX okay? I bought a bunch of AIG $2.50 October calls on Friday, and if the stock gets over about $3, I get a triple on my bet. After that point, we shall resume bashing this terrible company and their incompetent management.

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#4) On October 12, 2008 at 10:09 PM, dwot (29.24) wrote:

lol, ok goldminingXpert, everyone buy AIG so goldmining xpert can do a triple.

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