A Step In The Right Direction Against Counter Party Risk

Bloomberg is reporting this morning that some 2,054 entities have signed up to participate in a group which will oversee the credit default swap (CDS) market. CDS are the instruments (amongst others) that got AIG in trouble. Some of the big criticisms of such derivatives is the lack of standardization, oversight and clearing. CDS are not regulated products like stocks, bonds or options, but are are private contracts instead. There can even be disagreement between parties on whether or not a default of the underlying company really occurred.

AIG Revisited- Good Money After Bad?

Back in September, 2008 we discussed why a collapse of AIG would be so detrimental to the entire economy. Not that it wasn’t a moral hazard to save them, but rather that the ripple effects would extend well beyond Wall St. Julio recently pointed out that it would incompetent if the Fed did not perform due diligence to know the bonuses were in place. Whether they had enough time to determine that, I don’t know (it all happened so fast), but they did decide to save AIG for the larger purpose of preventing an entire economic collapase via a ripple effect of evil.

Crisis Coverage: Why AIG?

It appears the Fed has bailed out AIG with an $85 billion loan and an 80% stake in the company plus a bunch of other provisions like replacing management. This is good news in that the feared crisis is back on hold for now.  But why did they save Bear, Fannie/Freddie and AIG, but not Lehman?  AIG is an insurance company and not an investment bank right?  As usual, the true nature of what happened is a bit murkier.