Wednesday, November 12, 2008

AIG Investors Not Allowed To Lose

It's nice to be a bank. You can lend people money you don't have, and make reckless investments at that. Then, when the reckless investments bail, er, I mean fail, economists are eager to justify subsidizing you through public funds in the interest of the "public good". I wonder how hard these guys are laughing when they're on the way to the bank.

According to the Wall Street Journal:

>"Banks in the U.S. and abroad are among the biggest winners in the federal government's revamped $150 billion bailout of American International Group Inc...Banks in the U.S., Europe and Canada bought credit-default swaps on these securities from AIG, which in turn promised to compensate them if the securities defaulted. Defaults haven't been a major problem, but the market values of these CDOs fell sharply over the past year or so...Throughout its AIG rescue efforts during the past two months, the government has had the banks in its sights; it made its initial bailout of AIG in part to avoid potential bank losses that might have threatened the broader financial system...The banks that participate will be compensated for the securities' full, or par, value in exchange for allowing AIG to unwind the credit-default swaps it wrote..."It's like a home run for some of the banks," says Carlos Mendez, a senior managing director at ICP Capital, a fixed-income investment firm in New York. "They bought insurance from a company that ran into trouble and still managed to get all, or most, of their money back."

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