AIG: The Real Problem Behind The Risks

So, this is how it all went down:

Morgan proposed the following: A.I.G. should try writing insurance on packages of debt known as “collateralized debt obligations.” C.D.O.’s. were pools of loans sliced into tranches and sold to investors based on the credit quality of the underlying securities.

The proposal meant that the London unit was essentially agreeing to provide insurance to financial institutions holding C.D.O.’s and other debts in case they defaulted — in much the same way some homeowners are required to buy mortgage insurance to protect lenders in case the borrowers cannot pay back their loans.

Under the terms of the insurance derivatives that the London unit underwrote, customers paid a premium to insure their debt for a period of time, usually four or five years, according to the company. Many European banks, for instance, paid A.I.G. to insure bonds that they held in their portfolios.

Because the underlying debt securities — mostly corporate issues and a smattering of mortgage securities — carried blue-chip ratings, A.I.G. Financial Products was happy to book income in exchange for providing insurance. After all, Mr. Cassano and his colleagues apparently assumed, they would never have to pay any claims.

Since A.I.G. itself was a highly rated company, it did not have to post collateral on the insurance it wrote, analysts said. That made the contracts all the more profitable.

These insurance products were known as “credit default swaps,” or C.D.S.’s in Wall Street argot, and the London unit used them to turn itself into a cash register.


Of course, as this intricate skein expanded over the years, it meant that the participants were linked to one another by contracts that existed for the most part inside the financial world’s version of a black box.


Because it was not an insurance company, A.I.G. Financial Products did not have to report to state insurance regulators. But for the last four years, the London-based unit’s operations, whose trades were routed through Banque A.I.G., a French institution, were reviewed routinely by an American regulator, the Office of Thrift Supervision.

A handful of the agency’s officials were always on the scene at an A.I.G. Financial Products branch office in Connecticut, but it is unclear whether they raised any red flags. Their reports are not made public and a spokeswoman would not provide details.


In the quarter that ended Sept. 30, 2007, A.I.G. recognized a $352 million unrealized loss on the credit default swap portfolio.

Because the London unit was set up as a bank and not an insurer, and because of the way its derivatives contracts were written, it had to put up collateral to its trading partners when the value of the underlying securities they had insured declined. Any obligations that the unit could not pay had to be met by its corporate parent.

So began A.I.G.’s downward spiral as it, its clients, its trading partners and other companies were swept into the drowning pool set in motion by the housing downturn.


At the end of A.I.G.’s most recent quarter, the London unit’s losses reached $25 billion.


The Amazing Race Bees Are Much Calmer Than All This! S13E01 (CBS)

The race is starting from LA. They are driving to the LA Coliseum in classic cars. Tony and Dallas are mother and son from Northern California. Nick and Starr are siblings. Ken and Tina are separated husband and wife. They will decide after the race to see if they will continue together. He cheated on her. Aja and Ty are dating long distance. Marisa and Brooke are southern blonde belles. Andrew and Dan are fraternity bros from Phoenix, Arizona. Anthony and Stephanie have been dating for four years. They are from LA. Anita and Arthur are married old beekeepers. Kelly and Christy are recently divorced friends. Terrence and Sarah are newly dating from NYC. Mark and Bill are best from bets friends and geeks from San Diego.

Warning: Spoilers ahead.

Continue reading “The Amazing Race Bees Are Much Calmer Than All This! S13E01 (CBS)”

Gold Plated iPods: Feeling Like Having Some Extra Bling?


If you feel that your iPod Nano or your iPod Touch doesn’t have enough bling, maybe you’ll consider having it goldplated? Goldstriker offers you this service, for a modest premium of course. Some might be worried that this makes one of the most stolen gadgets even more enticing to prospective thieves, but if you’ve got the money, it can be worth it.

My latest from Unplggd…

Look! Ctrl-Alt-Del Cups


Taiwan’s MOD Design designed these appropriately named Reset Cups, which are larger-than-life version of the iconic keys that are found on all PCs. This combination of keys is used to either reboot or login into your Windows PC.

My latest from Unplggd…

Rainbow Star LED Lamps: Changing The Mood of Any Room


We are fans of LED lamps. The enable you to change the mood and atmosphere of a room quite easily. Rainbow Star Lamps from Lumenworks are color-changing LED lamps. Just like the LivingColor lights from Philips, these lights will work hard at changing the ambiance of any room. Unlike the Philips lamp, they are available at a fraction of the price.

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House Rejects $700 Billion Bailout Package

The House rejects Bush’s $700 billion bailout package, by a vote of 228 to 205. Stocks take a plunging.

Blackbook M: The Android Phone You’ll Want


Personally, I find the design of the HTC G1 a bit unappealing. That’s why I found this design tantalizing. It’s a concept phone named the Blackbook M designed by Emre Durmus, a freelance photographer and designer.

My latest from Unplggd…

Woodchuck iPod/Laptop Speaker Set

Looking for a cheap pair of speakers for your laptop or iPod? The Woodchuck speakers aren’t made out of wood, but have a wood grain motif. The pair of speakers are perfect for mobile use.

Singapore F1 Grand Prix

A general view shows part of the illuminated street circuit of the Singapore Formula One Grand Prix at dusk (REUTERS/Tim Chong)
A general view shows part of the illuminated street circuit
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