March 16, 2009

Excuses are like shit...

...they're plentiful and they all stink. Take, for example, AIG's position on WHY bonuses have to paid to the morons who wrote insurance without adequate capital reserves or even premiums.

I take this to mean that if a bunch of AIGFP managers quit because they didn't receive bonuses promised in their contracts, then France could, if it wanted, to appoint its own designee. And if that happened, then it would equate to a default and those contracts would kick in, at a cost to AIG the US government of at least tens of billions.

In other words, I take this to be a threat: "if you don't give us our bonuses, we'll trigger a default event that will cost AIG the US government tens of billions of dollars." It's just a polite way of saying, "Pay us the $100 million ransom
or we start exploding the suicide bomber vests we're wearing."

Here's the catch... the counterparties are functionally at the mercy of the Feds at this point. We've played nice until now, paying off claims in full to prevent a further collapse of the financial system. But now it's time to play some hardball. This is NOT a default event and any CP that tries to claim it is should have their contract wiped clean. None of them will try it if they all know what they face which is loss of the protection they needed. Especially since the 'event' is an internal change that doesn't effect AIG's ability to pay out.

What's so funny about this is that the excuse itself is proof of the incompetence of the 'geniuses' who wrote the business and the stupidity of the people who employed them.

Posted by mcblogger at March 16, 2009 01:55 PM

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