Derivatives- What of it Warren?

I mean we even lost 400 million 

Derivatives typically have a large notional value.  As such, there is the danger that their use could result in losses for which the investor (Bank) would be unable to compensate.  So many vehicles riding on one underlying where the vehicles reach escape velocity, far outperforming the original value of the financial product through leveraging and the huge dependencies on counterparties.     

The possibility that this could lead to a chain reaction ensuing in an economic crisis was pointed out by famed investor Warren Buffett called them 'financial weapons of mass destruction.'  A potential problem with derivatives is that they comprise an increasingly larger notional amount of assets which may lead to distortions in the underlying capital and equities markets themselves.

If the sale on these were called on as a whole, the spread on the leveraging could not be covered, the original product is distorted, lesser value if any.  That's a very large number 700 Trillion $dollars$ and that was in 2011, were above that now.  It's known that the Banks can only cover part of the spread, hell that sounds like a Bookie! 

There have been several instances of massive losses in derivative markets, such as the following:

Two former JP Morgan Chase & Co. (JPM) employees were charged by federal prosecutors with attempting to conceal trading losses at the largest U.S. bank last year as part of a probe of its US$6.2 billion loss on derivatives bets, story became to be known as the The London Whale.

From Wikipedia:
American International Group (AIG) lost more than US$18 billion through a subsidiary over the preceding three-quarters on credit default swaps (CDSs). The United States Federal Reserve Bank announced the creation of a secured credit facility of up to US$85 billion, to prevent the company's collapse by enabling AIG to meet its obligations to deliver additional collateral to its credit default swap trading partners.

The loss of US$7.2 Billion by Société Générale in January 2008 through misuse of futures contracts.

The loss of US$6.4 billion in the failed fund Amaranth Advisors, which was long natural gas in September 2006 when the price plummeted.

The loss of US$4.6 billion in the failed fund Long-Term Capital Management in 1998.

The loss of US$1.3 billion equivalent in oil derivatives in 1993 and 1994 by Metallgesellschaft AG.

The loss of US$1.2 billion equivalent in equity derivatives in 1995 by Barings Bank.

The loss of UBS AG, Switzerland's biggest bank, suffered a US$2 billion loss through unauthorized trading discovered in September 2011.

This comes to a staggering US$46.9 billion, the majority in the last decade after the Commodity Futures Modernization Act of 2000 was passed.

What of it Warren?

Bill George

AIG Bits The Hand That Feeds

In the last post, I just got done talking about this, where the Jack Wagons will be going after piles of money from their buddies for the cream is gone from the bucket.  The poor dears, go to the mirror you created this for yourself.

People of America we're watching

The move would be something of a shock, given that AIG just launched a high-profile television ad campaign called "Thank you, America," in which it offers the public its gratitude for the bailout. On Tuesday, the company promoted the ads again on Twitter, even as it came under fire over the lawsuit.

AIG



If AIG enters this suit it would be the equivalent of a patient suing their doctor for saving their life," said Mark Williams, a former Federal Reserve bank examiner who teaches in the finance department at Boston University.

AIG's board of directors had an alternative choice to borrowing from the Federal Reserve and that choice was bankruptcy. Bankruptcy would have left all AIG shareholders with worthless stock," a representative of the bank said Tuesday.

Greenberg, (Maurice R. Greenberg, A.I.G.’s former chief executive, who remains a major investor in the company) whose Starr International owned 12 percent of AIG before its near-collapse, has accused the New York Fed of using the rescue to bail out Wall Street banks at the expense of shareholders, and of being a "loan shark" by charging exorbitant interest on the initial loan.

The U.S. Treasury declined to comment. It completed its final sale of AIG stock in mid-December, concluding the bailout with what Treasury called a positive return of $22.7 billion. AIG shares fell 1.2 percent to $35.49 in afternoon trade. After losing half its value in 2011, the stock rose more than 52 percent in 2012, tripling the gains of the broader S&P insurance index. (good the Fed should put this into Social Security for we are being warned of yet another cliff hanger)

American International Group Inc, the insurer rescued by the U.S. government in 2008 with a bailout that ultimately totaled $182 billion, may now join a lawsuit against the government alleging the terms of the deal were unfair.


Cramer: The Market's Fate Rests With AIG
Jim Cramer explores the two possible scenarios for AIG and the ramifications of both.

TheStreetTV



Now for some news about the grateful AIG around the web from customers that have done business with them in Team Life Insurance,  and they call the Fed loan sharks, the poor dears!

Update: The board of directors of AIG has decided not to pursue the lawsuit against the Feds after a barrage of criticism from you!
Now I want to point this out, times have changed, look what happens in the media today when the consumer is pissed off.  Your seen and heard around the world so let the grading begin and with that, the Jack Wagons have nowhere to hide, you will close their doors!

G.C.C.U.   

That's it enough already!

Pissed Consumer 

AIG Life Insurance

Ripoff Report

Overview

Wolf in sheep’s clothing

Repo 105?

If there has ever been a Betty Crocker  recipe for book cooking it's this Repo 105 and 108 which is the same just a percentage separates the two by 3%.  Now accounting becomes rocket science,  firms are hiring grads from MIT with math majors and you would have to be one to even begin to calculate their books.

Repo 105 is an accounting maneuver where a short-term loan is classified as a sale. The cash obtained through this "sale" is then used to pay down debt, allowing the company to appear to reduce its leverage by temporarily paying down liabilities—just long enough to reflect on the company's published balance sheet. After the company's financial reports are published, the company borrows cash and repurchases its original assets.  Now isn't that clever,  a temporary move to hide your toxic assets until underwriters are done looking your books over and then give the borrowed money back to your buddy.  But oops,  Lehman could not pay back the borrowed money and all hell broke lose.

Same thing happen to AIG when they created insurance for the swaps and derivatives sold to fund managers and other countries throughout the world like Greece,  the rug was pulled because Lehman went BK so AIG could not cover their spread.  Then the bailout started, they all got money from the Feds on the backs of American taxpayers (Thank You) with that there was no demand for what they should do with the bailout money.  So now with all that cash  from the Feds the battlefield has begun.  Wall Street does not want to be regulated and has hired attorneys along with lobbyist with the hundred of millions and even billions to halt regulators from the fat cow profits they designed.

They got the bailouts and instead of helping they bit the hand that feeds them so this shell game that contains no red ball can continue.  Because let's face it, no profit has ever been created like the subprime meltdown, we have a junkie on our hands.  What you need to do is control your own investing, many programs available with the purchase of stocks directly through a company itself,  no need for a broker or fund manager, instead of feeding this junkie cut them off.


traynickel

AIG- Treasury Department Turns a Profit

AIG Stock Price

WASHINGTON (AP) — The U.S. government said Monday it will show a profit of more than $12 billion from its $182 billion bailout of AIG after selling a big chunk of its shares in the insurer.

The Treasury Department announced the sale of almost 554 million American International Group Inc. shares at $32.50 apiece, netting the government about $18 billion.

The sale reduces the government's stake in AIG to under 22 percent from about 53 percent. That puts its holdings in the insurer below a majority stake for the first time since the 2008 bailout.

It will also mean that the $182.3 billion bailout has been fully recovered, and then some. The Treasury Department said it and the Federal Reserve have recovered $194.7 billion so far.

"To stabilize and then restructure the company with a very substantial positive gain for the American taxpayer is a significant accomplishment, but we need to continue the critical task of implementing Wall Street reform so that the American economy is never put in this position again," Treasury Secretary Tim Geithner said in a statement.

AIG, which is based in New York, nearly collapsed at the height of the financial crisis in 2008. As the housing market crumbled, it suffered crippling losses from exotic financial instruments based on mortgage securities.

Its bailout was the biggest of the Wall Street rescue packages.

If there is more demand for the latest stock sale, underwriters have a 30-day option to buy up to $2.7 billion more of the government's stake in AIG. If the option is fully exercised, the government's stake in AIG would drop to 16 percent.

AIG said it's buying back $5 billion worth of the stock.

Its shares closed Monday at $33.30, slipping 69 cents, or 2 percent.

52-Wk High 35.36

52-Wk Low 19.18

TheStreetTV

Jack a true Businessman

Wealth is the abundance of valuable resources or material possessions or the control of such assets. The word wealth is derived from the old English wela, (well) which is from an Indo-European word stem. An individual, community and region or country that possesses an abundance of such possessions or resources is known as wealthy.

Business as usual:

SuperEd86