Pat: Utter gibberish and utterly divorced from reality.
Goldman had NO counterparty risk with AIG at all. Their position was nearly fully collateralized through cash and securities and the balance was covered by insurance (in the form of CDS).
You might want to assemble the actual facts before weighing in on a topic.[/quote]
I don’t think gibberish. I’ll take your word that some of it was collateralized, though some reports I’ve found indicate that it was much less than the $11,000,0000 that you suggested.
On the insurance part, AIG is an insurance company. CDSs ARE insurance. If they go bankrupt, insurance claims against them are general credit obligations. Those contracts would have been examined and probably never sorted out. Hence my claim yesterday that it would last 10 years.[/quote]
SK: Except that “insurance” in this case (CDS) isn’t “insurance” in the conventional sense. Plus, the CDS that Goldman held wasn’t offered by AIG, but rather to “insure” against a default BY AIG (big difference). Meaning that Goldman wouldn’t be going to AIG to collect on the CDS, but another issuer, which makes perfect sense if you think about it.
You also hear terms like “portfolio insurance” on Wall Street. It isn’t insurance at all, but indicates a solidly (in some cases, perfectly) hedged position; thus you’re “insured”.
Again, the key point is counterparty risk and the fact is that Goldman had no such risk with AIG. Using the conventional notion of a BK “clawback” is totally incorrect and completely misses the point and creates a risk where there was none. Thus my use of the term “gibberish”, which I reserve for people who don’t know what they’re talking about.
