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fars1d3s
Posts: 451
Joined: August 14th, 2004, 12:28 pm

AIG next ?

September 17th, 2008, 5:17 pm

QuoteOriginally posted by: PaulThe difference between Lehman and AIG is that the collapse of the former will not bring down the whole financial system whereas the collapse of the latter might.From this follows the obvious recommendation: Construct derivatives contracts that are so intertwined with other institutions that to buy or sell them will guarantee your survival! Quite a nice task for any quant-lawyer!PThe only guarantor is a regulated exchange such as CME or NYMEX, where there is transparency, and no conflict of interest. Bilateral countracts between counterparties, even counterparties supposedly AAA-rated, are no guarantees as we currently witness.By the way, see Nobel Laureate Joseph Stiglitz's reply on the current crisis: http://www.cnn.com/2008/POLITICS/09/17/ ... index.html
 
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Traden4Alpha
Posts: 23951
Joined: September 20th, 2002, 8:30 pm

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September 22nd, 2008, 11:28 am

QuoteOriginally posted by: fars1d3sQuoteOriginally posted by: PaulThe difference between Lehman and AIG is that the collapse of the former will not bring down the whole financial system whereas the collapse of the latter might.From this follows the obvious recommendation: Construct derivatives contracts that are so intertwined with other institutions that to buy or sell them will guarantee your survival! Quite a nice task for any quant-lawyer!PThe only guarantor is a regulated exchange such as CME or NYMEX, where there is transparency, and no conflict of interest. Bilateral countracts between counterparties, even counterparties supposedly AAA-rated, are no guarantees as we currently witness.By the way, see Nobel Laureate Joseph Stiglitz's reply on the current crisis: http://www.cnn.com/2008/POLITICS/09/17/ ... ex.htmlBut isn't it more complex (and worse) than that? The claimed basis for the stability of a transparent exchange-based system is that we can: 1) collectively diversify the risks of counterparty failure; 2) collectively observe and correct potentially dangerous concentrations of assets/liabilities/risks in parts of the system. I think it's clear that markets fail to provide #2. As much as I applaud transparency, I doubt that it would have prevented the crisis. Transparent regulated markets seem all too capable of creating bubbles in internet stocks, oil, etc. And a transparent exchange-based system fails on #1 in the event that all counterparties make the same mistake so that the failure is correlated across the market. If anything, regulation and transparency can increase the chance of systemic failure because it can increase the uniformity of the behavior of the participants. This crisis was much bigger than one large hidden counterparty making bad risk decisions that then threatened all the financially-sound participants of the system.
 
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Paul
Posts: 10791
Joined: July 20th, 2001, 3:28 pm

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September 22nd, 2008, 11:43 am

I just spoke to a lady at AIG, it wasn't a very pleasant conversation, and it ended quite abruptly. I asked her about regulations, she started reading some prepared statement, I interrupted and asked "What about statutory FSA regulations?" She replied "I don't know anything about FSA regulations." I then spoke to a much more helpful man at the FSA. But again the conversation was far from ideal, "AIG have thousands of products, we can't know about them all."I've always said that rules and regulations are there to protect the morally guilty. I am seeing more evidence of this every day.P
 
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farmer
Posts: 13478
Joined: December 16th, 2002, 7:09 am

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September 22nd, 2008, 11:48 am

QuoteOriginally posted by: PaulThe difference between Lehman and AIG is that the collapse of the former will not bring down the whole financial system whereas the collapse of the latter might.It all depends where you think the "cancer" ends and the economy begins. I think the collapse of AIG would target the cancer more precisely than any surgical regulations could.
 
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farmer
Posts: 13478
Joined: December 16th, 2002, 7:09 am

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September 22nd, 2008, 12:01 pm

Anyway, people got paid a lot of commissions to sell mortgages that were likely to default. The blame can be placed on the incentive structure, not on OTC derivatives.There is no financial system, with or without derivatives, where you can lend all that money to people who can't pay, and not have some problems.The difference between financial systems, is whether the people who do the dumb lending suffer the problems. In the US today, I don't see that is the case.
Last edited by farmer on September 21st, 2008, 10:00 pm, edited 1 time in total.
 
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Traden4Alpha
Posts: 23951
Joined: September 20th, 2002, 8:30 pm

AIG next ?

September 22nd, 2008, 1:27 pm

QuoteOriginally posted by: PaulI just spoke to a lady at AIG, it wasn't a very pleasant conversation, and it ended quite abruptly. I asked her about regulations, she started reading some prepared statement, I interrupted and asked "What about statutory FSA regulations?" She replied "I don't know anything about FSA regulations." I then spoke to a much more helpful man at the FSA. But again the conversation was far from ideal, "AIG have thousands of products, we can't know about them all."I've always said that rules and regulations are there to protect the morally guilty. I am seeing more evidence of this every day.PI'm reminded of some research using simulated agents and genetic algorithms in an iterated prisoner's dilemma world. In one of the runs of the simulation, the agents in the population evolved a rather nasty quasi-stable strategy. They spontaneously evolved a mutually synchronous cycle of Cooperate-Cooperate-Cooperate-Defect. Although this strategy slightly reduced the returns among the population's long-time residents (when they played against each other) it reaped huge profits against the steady flow of newcomers in the simulation (i.e., the newcomers == greater fools did not know when to defect). It's not unlike the poker parlor strategies that Aaron Brown discusses in his book -- the parlor professionals modulate their play to consistently profit from the amateurs (albeit while ensuring that the amateurs have fun losing).Leaving morals aside (which seems to be the sad trend du jour/du ans/du siecle), it appears that the only rational strategy with a "house-always-wins" world is to join the house. Although cynical, the strategy may actually be, in the long-run, socially beneficial. If "house-always-wins" motivates people to join the house, that would seem to improve social cohesion in the long run (as long is it doesn't fail from short-term internal social divisions or colonialist-style external wars). That brings us back to the second-order strategies of the poker parlor professional -- its OK to exploit the masses as long as the masses have enough fun in the process and are not so disillusioned by the outcome that they refuse to play in the future.
 
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Paul
Posts: 10791
Joined: July 20th, 2001, 3:28 pm

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September 22nd, 2008, 1:31 pm

I met a man the other day who said he'd been offered a job in a Guatemalan jam factory. Assuming that's not a euphemism, that seems like a nice strategy too!P
 
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Traden4Alpha
Posts: 23951
Joined: September 20th, 2002, 8:30 pm

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September 22nd, 2008, 2:22 pm

QuoteOriginally posted by: PaulI met a man the other day who said he'd been offered a job in a Guatemalan jam factory. Assuming that's not a euphemism, that seems like a nice strategy too!PYes, it's part of the factory's new line financial foods that includes "Capital Preserves" and "Margin Marmalade." You stick your money in a jar, boil it, and seal it. Works much better than giving it to AIG, what?
 
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ppauper
Posts: 70239
Joined: November 15th, 2001, 1:29 pm

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September 23rd, 2008, 1:10 pm

hussein scolds mate biden on AIG flip-flop
 
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ppauper
Posts: 70239
Joined: November 15th, 2001, 1:29 pm

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December 5th, 2008, 1:42 pm

AIG offers Shariah-compliant insuranceI guess they're trying to suck up to the "president elect" ?
 
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ppauper
Posts: 70239
Joined: November 15th, 2001, 1:29 pm

AIG next ?

March 2nd, 2009, 2:26 pm

just how many times are we going to have to bail AIG out ?They got what, another $30B today, in what the 4th rescue 4th times the charm ?
Last edited by ppauper on March 1st, 2009, 11:00 pm, edited 1 time in total.
 
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VIGO
Posts: 73
Joined: January 27th, 2007, 10:25 pm

AIG next ?

March 2nd, 2009, 3:22 pm

QuoteOriginally posted by: ppauperjust how many times are we going to have to bail AIG out ?They got what, another $30B today, in what the 4th rescue 4th times the charm ?I am afraid it carries on - Next are the automakers "Once Again" and forgot the regional banks too!!!
 
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hamster
Posts: 216
Joined: October 12th, 2008, 3:51 pm

AIG next ?

March 3rd, 2009, 1:12 pm

it's payday = bad day. how much billions were lost? i lost feeling for numbers...what was their strategy? insuring everything no matter what?
 
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grafixel
Posts: 115
Joined: September 12th, 2002, 1:10 pm

AIG next ?

March 3rd, 2009, 10:51 pm

QuoteProblems at AIG did not come from its traditional insurance operations, but instead from its financial services units, and primarily its business insuring mortgage-backed securities and other risky debt against default.more to come i guess
Last edited by grafixel on March 2nd, 2009, 11:00 pm, edited 1 time in total.
 
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Marine
Posts: 395
Joined: July 17th, 2003, 7:56 am

AIG next ?

March 4th, 2009, 9:21 am

Does anyone know who is on the other side of AIG's trades?
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