No schadenfreude over this for me. It's bad news all around, and it will end up hurting everybody.

Hence the calls from Europe for the US to pass a bailout bill - the European banks stand to get some cash from it.

“
No schadenfreude over this for me. It’s bad news all around,
and it will end up hurting everybody.
“

Mr. Limbaugh had a good take on Obama’s wailing about how the USA
is not respected around the world. (this was on Monday’s show)

Limbaugh said that after all the rotten investments Europeans and
Asians made in institutions run by Obama’s buddies (Fannie/Freddie),
yes, the world probably does hate the USA.

My question becomes will the OWNERS of AIG (US Gov. 79.9%) who bought into ownership of AIG be required to cover credit default swaps which will be triggered in European, as AIG is their insurer? If they do not cover, will that say the US govt. defaults?

they were told freddie was a riskless investment. the rest of the world should be angry

Europe was “staring into the abyss,”

Europe has been staring into the abyss for centuries. America has mostly attracted or picked out the very best of the Europeans. What’s left is hardly worth saving, although I’d be in favor of saving any left that aren’t stupid socialists.(We could probably fit those three or four in bathtub and tow them over in a tug boat.)

BTW, for all you stupid Europeans who think the Nazis are on the right, you’re wrong. It was the National SOCIALIST German Workers Party.

Live with it.

But, but....America is not relevant to the Euro-zone economy anymore!

*spit*

I bought AIG yesterday.

AIG’s Dangerous Collapse

& A Credit Derivatives Risk Primer

by Daniel R. Amerman, CFA | September 17, 2008

Overview

While it may look superficially similar to the recent implosions of such investment giants as Fannie Mae, Freddie Mac and Lehman, the takeover and bailout of AIG is quite different, and means that the market is entering the next and even more dangerous phase. What is driving the fall of AIG – and potential government losses that may far, far exceed the $85 billion bailout announced late on September 16th - is not mortgages or real estate (directly), but fears that AIG’s huge, global credit-default swap positions will unravel. The $62 trillion dollar credit derivatives market is 50 times the size of the subprime mortgage derivatives market, and is indeed larger than the entire global economy.

Unfortunately, few people understand credit derivatives, or the full risks to the United States and global markets and economies. In this article, I will take a Credit Derivatives Primer that I published in the spring of 2008 - which anticipated this exact type of event - and update it for the current situation. Through reading this article, you should be able to greatly increase your knowledge of what credit derivatives are, and why they are a far greater danger than subprime mortgages. We will end with introducing some concepts about how individuals can protect themselves and even profit from these unprecedented market conditions – something you won’t find in recent financial history or conventional investments.

The Rapid & Dangerous Collapse of AIG

“The particular risks that brought the company (AIG) to the brink of bankruptcy seem to lie not with its core insurance businesses but with its derivatives-trading subsidiary AIG Financial Products. AIG FP, as it's called, merits a mere paragraph in the nine-page description of the company's businesses in its most recent annual report. But it's a huge player in the new and mysterious business of credit-default swaps: derivative securities that allow banks, hedge funds and other financial players to insure against loans gone bad.” Time, September 17, 2008

On September 1st, few knew that AIG, the largest insurance company in the world with over $1 trillion in assets, was in deep trouble. By September 12th, the rumors about major trouble were everywhere. By September 15th AIG’s corporate life expectancy was being measured in days, and the question was: bankruptcy, buyer or bailout? By the evening of September 16th, the federal government had massively intervened, making an $85 billion loan to AIG in exchange for a controlling 79.9% equity share of the company.

Welcome to the brave new world of credit derivatives driven collapses. A world that is far more dangerous than the world of subprime mortgage derivatives. A complex world that because of its sheer size can potentially cause more damage in a matter of days than the subprime mortgage derivatives caused in their first year in the headlines. The chart below shows the relative size of the credit derivatives and subprime mortgage markets.

How great is the real danger? The bulk of the remainder of this article explains the extent of the danger. With a few market changes, this is the credit derivatives primer as published at numerous websites on May 2nd of 2008. There is also new material at the end of the article, talking about what could be anticipated, and introducing some solutions.

Read the rest at: http://www.financialsense.com/fsu/editorials/amerman/2008/0917.html

“
they were told freddie was a riskless investment.
the rest of the world should be angry
“

Thanks for amplifying. The Europeans, Asians, et al that invested
in institutions like Fannie/Freddie were SWINDLED.

I’m sorry I threw it out, but I think on Monday the Wall Street
Journal had an article about a number of small, conservatively run
banks are now having to sell out to larger banks or close their doors.
(profiled the need for a small bank in Johnson City, TN as an example
of this freakin’ mess)

If I understood it correctly, the small banks bought some sort of investment
instruments (from Fannie/Freddie?). The US Government said these things
were so rock-solid, it was about the only instrument that banking
regulators would allow these banks to list as capitalization along
with T-bills.
Of course, those instruments went belly-up with the recent debacle.
So this small, “play by the rules” bank lost ONE-HALF of it’s capitalization
in short order. And must now allow itself to be taken over by a larger bank.

This is one time I actually am MAD about something done to bankers!!!

It took a weekend to shatter the complacency of German finance minister Peer Steinbrück. Last Thursday he told us that the financial crisis was an "American problem", the fruit of Anglo-Saxon greed

Somebody should tell Mr. Steinbrück that the reason America is in trouble is because over 50% of us have German heritage.

Germany has already shot down the French idea. The nationalists are digging in their heels in Berlin and Madrid. We are fast approaching the moment when events decide whether Europe will bind together to save monetary union, or fracture into angry camps. Will the Teutons bail out Club Med? If not, check those serial numbers on your euro notes for the country of issue. It may start to matter.

At bottom, this has always been, to my mind at least, the central question to whether the Euro would ultimately survive.

In good times, the stress on the structure is not too heavy.

But in a bad recession, the stress may prove too much. Western Germany has already dug deep in into its pockets to prop up the states that made up the former DDR.

If Europe goes into a recession, southern Europe will go into a depression. Do the Germans and their northern neighbors have bottomless pockets to support the south? Or will their businesses and taxpayers put their foot down?

“My question becomes will the OWNERS of AIG (US Gov. 79.9%) who bought into ownership of AIG be required to cover credit default swaps which will be triggered in European, as AIG is their insurer? If they do not cover, will that say the US govt. defaults?”

Wow! I hadn't thought of that! We may have just bailed out Europe again! Third time in 100 years we've saved their bacon. Hope the Russians don't get wind of this!

But, But... Freddie and Fannie are designed to help the less fortunate own a piece of the American Dream. Barny told me so, so it must be true. He wouldn't lie. He's a nice man with a big heart. Its all to make America more equal and more fair.

So what if the dumb European bankers buy these mortgage backed bonds and, incredibly, the side bets that are credit swaps because they believe the US government will NEVER LET THEM GO TO DEFAULT? /Sarc/