AIG reveals who we are bailing out

Image via Wikipedia

Confused? We all are. Read this to learn what Financial Derivatives are.

Severe valuation losses on the super senior multi-sector credit default swap portfolio of AIG Financial Products Corp. (AIGFP) triggered collateral provisions in the swap contracts, creating a liquidity crisis for AIG in September 2008. The Federal Reserve Bank of New York (FRBNY) provided an emergency $85 billion loan to AIG to meet short-term cash needs. The aid received by AIG helped avoid severe financial disruptions by providing liquidity to important financial institutions and municipalities.

Using funds from the emergency loan, financial counterparties listed on Attachment A (all attachments are posted online at http://www.aig.com/Related-Resources_385_136430.html ) received a total of $22.4 billion in collateral relating to CDS transactions from AIGFP between September 16, 2008 and December 31, 2008. This amount represents funds provided to such counterparties after the date on which AIG began receiving government assistance. The counterparties received additional collateral from AIG prior to September 16, 2008.

Related articles by Zemanta

• Kohn Takes Beating for the Boss Over AIG (blogs.wsj.com)
• Just Gets Worse (talkingpointsmemo.com)
• AIG set to unveil record 60bn quarterly loss (telegraph.co.uk)

Economy Strains Under Weight of Unsold Items - washingtonpost.com

Image by futureatlas.com via Flickr

Economy Strains Under Weight of Unsold Items - washingtonpost.com: "Some analysts see ending the credit crunch as soon as possible as critical to preventing lasting damage. Harvard economist Diego A. Comin, in his research on Japan's decade-long bout of economic stagnation in the 1990s, found that demand stayed low long enough that businesses didn't make necessary investments. Computer adoption rates, for example, slowed, as did productivity growth. Businesses lost ground to competitors in countries such as South Korea, which made it harder for Japan to emerge from its slump.

Investing in new products and processes matters even more in highly competitive global industries plagued by over-capacity."

Related articles by Zemanta

• Lessons from Japan - more money, faster (americablog.com)
• The Japan comparison (samizdata.net)

Help! What is Quantitative Easing?

Image via WikipediaA great Weekly Economic Monitor from Barclays Capital this week. (If you don't get it, start building a relathipship with the Barclays team. Their research is the best.)

Quantitative easing (QE) is the name given to a three-part monetary policy program implemented by the Bank of Japan (BOJ) from March 2001 to March 2006. At the outset of the program, the BOJ believed that economic conditions warranted monetary easing as drastic as is unlikely to be taken under ordinary circumstances, and therefore made the following changes to its policy strategy:

1. A switch in the operational objective of monetary policy the policy instrument from an overnight interest rate to current account balances(bank reserves plus deposits of non-bank financial intermediaries at the central bank).

2. A reduction in the overnight interest rate to zero.

3. A commitment to maintain the new procedures until y/y CPI inflation registers stably at zero percent or higher.

Virtually all developed-world central banks conduct monetary policy in the same way: by adjusting the supply of bank reserves balances in accounts commercial banks maintain at the central bank in order to target a specific short-term interest rate. The amount of reserves supplied is a passive variable in this process. Banks demand a certain quantity of reserves to meet reserve requirements plus an additional, much smaller, amount of precautionary reserves. The central bank simply meets the amount of reserves demanded at the targeted interest rate. As a result, the total amount of reserves in the banking system is, in a normal environment, very close to the level of required reserves (i.e there are very little excess reserves).

Related articles by Zemanta

• Japan's core inflation up sharply
• Bank rates head to zero
• Economists React: China 'Becoming More Aggressive'

Goldman to Sell Bonds in First FDIC-Backed Offering

Image via WikipediaBloomberg.com: U.S.

By John Detrixhe and Gabrielle Coppola

Nov. 24 (Bloomberg) -- Goldman Sachs Group Inc., the biggest U.S. securities firm to convert to a bank, plans to sell notes in the first offering of debt backed by the Federal Deposit Insurance Corp., according to a person with knowledge of the transaction.

Goldman is leading banks in what analysts said may be a wave of as much as $600 billion of government-guaranteed issuance. Goldman’s benchmark sale may price as soon as tomorrow, said the person, who declined to be identified because terms aren’t set. Benchmark size typically means at least $500 million.

The government guarantee opens a new channel for bank funding after the credit seizure sapped demand for financial debt and sent yields to record highs of 7.24 percentage points above Treasuries. Banks, which haven’t sold dollar-denominated bonds since September, may raise $400 billion to $600 billion under the program within six months, Barclays Capital estimated in October."

Related articles by Zemanta

• Citi and Manic Monday
• Dollar falls on Citi bailout

Bailout Funding Sources

Great chart that breaks down what the US government has committed in terms of dollars and what agencies it is using to do it.

http://www.bloomberg.com/apps/data?pid=avimage&iid=i0YrUuvkygWs

Related articles by Zemanta

• ELYAC Realty- Paulson: crisis happens once or twice in 100 years

Bloomberg.com: U.K. & Ireland

Bloomberg.com: U.K. & Ireland: "Oct. 13 (Bloomberg) -- U.K. Prime Minister Gordon Brown's government is set to buy majority stakes in Royal Bank of Scotland Group Plc and HBOS Plc to contain the worst financial crisis since the 1930s, two people familiar with the matter said."

Related articles by Zemanta

• Banks Bail-Out: 'Enough Is Enough'
• Video: Gordon Brown unveils banks bail-out