Remember the AIG backdoor bailout?
This would be the bailout where AIG promised to pay a bunch of banks billions if their investments tanked.
Then the investments tanked, hard, and AIG didn't have the money.
So the Fed stepped into save AIG, which in turn saved a bunch of banks - with the public attention focused on bad, bad, AIG.
Over and above the billions in direct and indirect cash payments to AIG and the banks - they benefitted by having the Fed's newly created entity, Maiden Lane III solve all their problems.
Maiden Lane bought the bank's crap CDOs, so the banks were off the hook.
And the now all-but-nationalized AIG held IOUs for bad investments held by the Fed's Maiden Lane III.
AIG then cancelled the IOUs (the credit default swaps) and now it was off the hook.
All the crap CDOs were now on the Fed's hook.
Everybody was happy, even taxpayers, since they weren't allowed to know the details of the deal.
Until now.
AIG's formerly secret Schedule A has been released - and it shows a few interesting facts:
- AIG was selling credit default swaps after 2005.
- Goldman and Societe General got most of the swaps, and therefore the lion's share of the money funneled through AIG. (More of a confirmation rather than a revelation)
- The securities involved were not A rated (average rating of a high C), yet the Fed accepted them as collateral on loans. As Zero hedge puts it 'Bernanke will allow any toxic crap to be eligible collateral, likely at par'
Wiser heads are still pouring through the document - so perhaps more will be revealed.
Reuters has a great quote from a derivatives consultant: “If all of this had come out in the public domain in late 2008, Goldman Sachs and Merrill would have been deeply embarassed and the Federal Reserve wou[ld] have been questioned."
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