New York Fed "Very Sensitive" on AIG, Company E-Mail Says Bloomberg News – January 19, 2010 By Hugh Son The Dec. 2 and Dec. 24 AIG regulatory filings in 2008 included passages with total amounts of bonds purchased and the source of funding to pay the banks about $62 billion, including the forfeiture of collateral postings. The references were less clear than the language that was omitted, said Janet Tavakoli, founder of Chicago-based Tavakoli Structured Finance, Inc., a financial consulting firm. The average person wouldn’t know what this paragraph meant,” Tavakoli said. End of Excerpt J.T. Note: I immediately knew what the paragraph meant, but the average person—or average shareholder—wouldn’t know what it meant. Furthermore, why weren’t the counterparty details (revealed in the March 2009 AIG filing) made public in September 2008, when the FRBNY extended its initial $85 billion credit line to AIG? Today’s WSJ reported that the French banks outmaneuvered the Fed to get 100 cents on the dollar in the AIG bailout. The French banks should be grateful that the Fed didn’t claw back collateral that they had already extracted from AIG as of September 2008. For example, just prior to the September 2008 bailout, Societe Generale extracted $5.5 billion from AIG that in a “normal” bankruptcy may have been viewed as a fraudulent conveyance. Moreover, these circumstances were far from normal given that the CDS counterparties transactions and suspect underlying CDOs precipitated AIG's crisis. Public money was at stake on September 2008, when negotiations should have been pressed. It is likely that not only would the French not have gotten 100 cents on the dollar, they would have owed a return of billions in collateral. The banks obviously needed the bailout money, but it could have all been re-characterized as a loan that had to be paid back. A month prior to the first September 2008 bailout, Canyon settled a dispute over a financial guarantee on a portfolio of similar collateral for only ten cents on the dollar with another bond insurer, FGIC UK. Canyon’s dispute was over a financial guarantee, not a credit derivative, but it was for similar underlying assets. If I were negotiating, I I would have looked to this previous settlement to tell the French to take the discount or take nothing at all—and have a nice flight back to France. 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). Janet Tavakoli's book on the global financial meltdown is Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street (Wiley 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. TSF makes some information available to the general public. Please click here for other articles.
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Janet
Tavakoli, President: jt@tavakolistructuredfinance.com
TEL: (312) 540-0243