To: Ernest_at_the_Beach
Hardly. Collateral isn't a cost. AIG has investments, in bonds or whatever, and it simply pledges some of those as collateral, that Lehman or Citi will pay their leases as due. AIG still owns those investments, and still earns all the interest on them. It is also collecting its underwriting fees for guaranteeing the payments if either Lehman or Citi break their leases. None of this is a cost.
13 posted on
03/26/2009 1:49:03 PM PDT by
JasonC
To: JasonC
So Lehman is still paying their lease?
To: JasonC; Ernest_at_the_Beach
The WSJ reporting that the collateral on Lehman's lease is held in AIG bank accounts at the London branch of the Bank of New York Mellon. According to a previous filing, AIG Financial Products Corp. supplied the securitization of the leases through credit-default swaps.
Collateral isn't a cost but the thing that caused the need to post it (a downgrade in credit ratings) can indeed be costly as it may lead to reduced credit availability. In the case of AIG, however, that shouldn't be a problem as any slack will simply be picked up by you and me.
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