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Unwinding
at AIG Prompts Pasciucco to Ponder Systemic Failure (Excerpt)
Bloomberg News -
July 1, 2009
by
Richard Teitelbaum and Hugh Son
“There
was no reason to pay the contracts in full, says
Janet
Tavakoli, founder of Tavakoli Structured
Finance Inc. in Chicago and author of “Dear
Mr. Buffett: What an Investor Learns 1,269 Miles
from Wall Street” (Wiley, 2009). “We’ve
run roughshod over the interests of the American
taxpayer; we’ve bailed out the Wall Street
creditors; we’ve used AIG as a huge slush
fund.
-----
Once highly rated insurers such as Ambac Financial Group Inc.,
which competed with AIGFP, seldom agreed to such terms in their
swap agreements, according to a person familiar with the situation.
“The people at AIG were basically the laughingstocks of
derivatives desks around the country,” Tavakoli says.
Ambac and its rivals were rocked last year by multiple credit
downgrades that required them to post collateral on other derivatives
and guaranteed investment contracts.
As
late as August 2007, Cassano had failed to recognize the danger. “It is hard for us, without being flippant, to
even see a scenario within any kind of realm of reason that would
see us losing a dollar in any of those transactions,” he
told AIG investors that month on a conference call.
JT
Note: In August
2007, I publicly challenged AIG’s marks in their credit
derivatives book (“In
Subprime, AIG Sees Small Risk, Others See More,” Wall
Street Journal, August 13, 2009). The risk appeared substantial,
not small, as reported in WSJ. In chapter 10 of Dear Mr.
Buffett,
I explain that just one of its positions would have resulted
in a material write-down.
END OF EXCERPT
Janet
Tavakoli is the president of Tavakoli
Structured Finance, a Chicago-based firm that provides consulting
to financial
institutions
and institutional investors. Ms. Tavakoli has more than
20 years of experience in senior investment banking positions,
trading,
structuring and marketing structured financial products.
She is a former adjunct professor of derivatives at the University
of Chicago's Graduate School of Business. She is the author
of:
Credit
Derivatives & Synthetic Structures (John Wiley & Sons,
1998, 2001), Structured
Finance & Collateralized Debt
Obligations (John Wiley & Sons, 2008),
and
Dear
Mr. Buffett: What An Investor Learns 1,269 Miles From Wall
Street (John Wiley & Sons January
2009)
Clients
of Tavakoli Structured Finance
have the benefit of proprietary consultation, which is
not available in any other paid or public forum. Clients
also commission proprietary research and analysis.
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