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And you wonder why C is doing worse than GS



October 27, 2009 – Comments (2)

There are certain disadvantages to NOT having your ex-CEO run the Department of the Treasury. For example, when your CDOs go sour you have to accept the current market price for them, without having the Treasury pay you 100 cents on the dollar. Citibank should consider making a larger investment in the Treasury Department officials, it would benefit the shareholders more than all the current restructuring efforts.


It is by now well known that the banks on the other side of credit default swaps sold by AIG got paid out at par when the government bailed out the insurance giant.

But what isn't as well known is that by deciding to pay AIG's counter-party in full, the Federal Reserve was reversing months of work AIG executives had done to convince the banks to take a haircut on their positions.

In the months leading up to the bailout of AIG, the chief financial officer for AIG's financial products unit worked day and night and through the weekends to work out a deal with the banks that had purchased $61 billion of credit default swaps from AIG. AIG was trying to get the banks to accept as little as 40 cents on the dollar to retire the swaps.

Typically, a counter-party to a firm rapidly running out of cash might expect somewhere between 50 to 70 cents on the dollar to close out the obligations. Citigroup agreed last year to accept about 60 cents on the dollar from New York-based bond insurer Ambac Financial Group Inc. to retire protection on a $1.4 billion CDO. 

But when the New York Fed stepped in on September 16, 2008,with an $85 billion credit line for the company, those negotiations ground to a halt. Beginning early in November, a team lead by Tim Geithner at the New York Fed took over negotiations with the banks. Geithner’s team offered the banks 100 cents on the dollar


The biggest winners here include Goldman Sachs, which got $14 billion, as well as Societe Generale and Deutsche Bank. 

According to a quarterly New York Fed report, the value of those $29.6 billion in securities declined in value by about $7 billion as of June 30.,GS,GLE,XLF,FAS,FAZ,DB&sec=topStories&pos=7&asset=&ccode= 

2 Comments – Post Your Own

#1) On October 27, 2009 at 3:17 PM, cbwang888 (25.50) wrote:

That was just one.

GS is now a combo of i-bank and c-bank. They are now enjoying the hefty charge of bond and stock underwriting, leverage of their trades, and low inter-bank interests and more printed credits from Fed.

GS is soon going to be richer than any state in US.

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#2) On October 28, 2009 at 6:50 AM, Chromantix (90.16) wrote:

And there's not a damned thing any of us can do about it...

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