Weak end reads

1. Fed official: Real US unemployment rate is 16% (H/T LCA)

2. China still dependent on investment-driven economy; private consumption low

3. Zero Hedge presents the next Volkswagen; or how to repay the gov by bidding up your own stock: AIG

4. The Economist on how to monetize Newspapers

5. The rise and fall of the dollar

Hank Greenberg preferred Switzerland anyway

AIG will sell Stowe Mountain Ski Resort. Yes, it’s that AIG and Hank will deliver the proceeds in person to Tim G.

Kölnische Rück/Gen Re und Side Letters

Risiken über Rückversicherungen abzusichern ist opportun und sinnvoll und man hat ausserdem die Bücher frei davon. Nun gab es Fälle, wo diese scheinbare Absicherung über sog. Side Letters praktisch zurückgenommen wurde. MaW, es besteht keine Absicherung, ABER bilanzmässig sieht alles bestens aus.

AIG, welche Überraschung, war so eine Firma und wurde auch verurteilt deswegen.

The SEC fined them $10mil in 2003 for using this craftiness to help a communications company called Brightpoint inflate its earnings, and AIG-FP was investigated in 2004 for helping PNC Bank shift bad assets into a special-purpose entity (this ended in a deferred-prosecution agreement). Anyway, around ‘04 they decided the side letter jig was up… and AIG entered the CDS markets.

Und nun ist ein ganz brisanter Artikel raus:

AIG: Before Credit Default Swaps, There Was Reinsurance

In fact, our investigation suggests that by the time AIG had entered the CDS fray in a serious way more than five years ago, the firm was already doomed. No longer able to prop up its earnings using reinsurance because of growing scrutiny from state insurance regulators and federal law enforcement agencies, AIG’s foray into CDS was really the grand finale. AIG was a Ponzi scheme plain and simple, yet the Obama Administration still thinks of AIG as a real company that simply took excessive risks. No, to us what the fraud Bernard Madoff is to individual investors, AIG is to the global financial community.

Der Artikel behandelt weiter, dass diese CDS Versicherungen geschrieben wurden mit dem EXPLIZITEN AUSSCHLUSS JEGLICHER VERSICHERUNG. Dies eben in einem Side Letter! Und sie eröffneten eine sichere Einnahmequelle über Fees von üblicherweise 6% pro Jahr. Wohlgemerkt,mit der Gewissheit, KEINE Gegenleistung erbringen zu müssen.

Warum ist das für Deutschland von Relevanz? Nun, dazu weiter unten. Zunächst …

The significance of this for the US bailout of AIG is profound. If our surmise is correct, the position of Feb Chairman Ben Bernanke and Treasury Secretary Tim Geithner that the AIG credit default contracts are „valid legal contracts“ is ridiculous and reveals a level of ignorance by the Fed and Treasury about the true goings on inside AIG and the reinsurance industry that is truly staggering.

Ein Blick auf dieses Dokument zeigt, das neben jeder Menge US Banken die Deutsche Bank angeführt ist. Und dies erklärt auch …

Now you know why the Fed and EU officials are so terrified about an AIG liquidation, because it will result in heavy losses to or even the insolvency of banks and other corporations around the globe. 

Notice that while German Chancellor Angela Merkel has been posturing and throwing barbs at President Obama, French President Nicolas Sarkozy has been conciliatory toward the US.

Voller Artikel, der ein absolutes Must Read ist … und in der Zwischenzeit viel Spass bei der Bärenrallye an der Börse.

He, Deutsche Bank, dein Versicherungs-Manager

Hier ist einer der AIG Honchos bei denen deutsche Banken versicherten.

Risikostreuung deutscher Banken – AIG

Es ist bekannt, dass dt./europäische Banken ihre Risiken versichern. Frappant aber ist, statt Risikoabsicherung zu streuen, bündelte man sie zur Sicherung bei keinem geringeren als AIG. Absicherung über eine einzige Fa.!!!

Hier ist ein guter Artikel von B. Setser

Auszug

A simple historical example of “wrong way risk” is buying insurance against a big fall in the value of the ruble from Russia’s government (or Russian banks). The problem with the insurance? A big fall in the ruble is likely to be correlated with bad things happening in Russia, which would tend to make it less likely that Russia would be able to honor its promises. This was exactly the case in 1998.

The credit trader notes that writing insurance against a default on a lot of different high quality CDOs backed by mortgages is ultimately different than writing a lot of insurance against say fires. The odds of a large nation-wide fall in home prices is a lot higher than the odds of a fire that sweeps across a lot of geographically dispersed cities. I continue to be struck by the damage done by the historical data that seemed to suggest that a nation-wide fall in home prices was rare. Surely a large rise in home prices correlated across several regions would increase the odds? Moreover, it wasn’t hard to realize that the structure of the market had changed over time. When I was growing up — not so long ago — interstate banking was a novelty. Kansas and Missouri had different banks. That meant Kansas banks were very exposed to a downturn in the Kansas economy, but it also tended to reduce the correlation among different housing markets.

Und hier Gedanken, wie man sich NICHT versichert. Auszug:

So, where does that leave us? Making the back-of-the-envelope assumptions above of 100% correlation in credit quality between AIG and its insured CDO as well as zero recovery, the value of protection that investment banks bought was zero. Remember that the correct value of the trade is the risk-free valuation less the credit exposure. In our case, the credit exposure would be equal to the risk-free value of the trade.

Why did Banks buy Protection from AIG?
Did the banks realize the value of its protection held against AIG was zero? Of course they did – they aren’t as dumb as the media suggests. The reason they continued to pay the full market CDS offer (rather than a much lower level due to AIG’s massive wrong-wayness) to AIG was because they considered it a cost that allowed them to continue originating CDOs. If they could not offload super-senior risk to someone, their originating desks would be effectively shut down.

AIG und Verbindlichkeiten mit europäische Banken

Hat tip ALEA

Unten die Zahlungen, die Banken erhielten.

Irgendwelche Klagen, Anschie, Peer??

AIG und deutsche Versicherer

Die WiWo und andere deutsche Blätter klopfen den deutschen Versicherern anerkennend auf die Schulter, weil sie – angeblich – die AIG Extravaganzen nicht kopiert haben und damit sooo sicher sind.

Es ist auffallend, dass deutsche Versicherer so ruhig sind. Das muss nichts bedeuten, aber es stellt  sich die Frage, was haben die Versicherer mit ihrer Float gemacht, wie und wo haben sie Risiken abgesichert?

Nun kam ein STRICTLY CONFIDENTIAL paper der AIG gesandt an das US Treasury ans Licht. Danach hat AIG Verbindlichkeiten in Höhe von 1,6 BILLIARDEN !!! Dollar.

AIG ist „the largest US based general insurer in Europe“!! Es fällt schwer zu glauben, kein deutscher Versicherer hätte irgendeine Verbindung mit AIG.

Global Impact

AIG warned of turmoil around the globe if the government allowed the insurer to fail, adding “it is questionable whether the economy could tolerate another shock to the system that a failure of AIG would produce.” The value of the U.S. dollar might fall, Treasury borrowing costs could rise and the agency would face “doubts about the ability of the U.S. to support its banking system,” according to the presentation, parts of which were reported earlier by the New York Times. The municipal bond market would be stressed and Boeing Co. could lay off workers if AIG’s plane-leasing unit folded, the company said.

“It seems like they’re reaching on this litany of claims they’re making, some of which aren’t supported” by facts, said Haag Sherman, who helps oversee $8 billion as chief investment officer of Houston-based Salient Partners. “They are correct that without the government stepping in, you’d see big holes blown in the equity of American and European banks.”

Overseas Seizures

Under the scenarios sketched by AIG, European banks that bought credit-default swaps might need to raise $10 billion in capital and could face rating downgrades. Life insurance customers, their faith shaken in the industry, would redeem some of their $19 trillion in U.S. policies, overwhelming firms already weakened by the credit crisis, AIG said.

The $38 billion in support provided by the firm to money- market funds would be in jeopardy, AIG said, possibly forcing some to “break the buck.” The term refers to a money fund that suffers losses so large that it must pay investors less than the traditional $1-a-share value that gives the short-term funds their reputation for safety.

Outside the U.S., where AIG operates in more than 140 countries, a collapse could lead to the “immediate seizure” of its businesses by regulators and could impair “the entire insurance industry within certain regions,” the presentation said, which added that its conclusions were “speculative” and a matter of judgment.