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To: Real Man who wrote (400326)	1/30/2010 9:27:25 PM
From: carranza2	1 Recommendation Read Replies (2) \| Respond to of 436258

The AIG pay-the-counter-parties-at-par story is a complex one, not easily explained at a hearing that took less than a day. I have found that the TARP Inspector General's report is a very good explanation of it. docs.docstoc.com I think that there were some tremendous lapses in judgment, beginning with the idea that private parties would rescue AIG after the Fed essentially said it would do so by having extended an initial loan. When systemic risk was abundant, and the Fed had already extended a lifeline to AIG, why should private parties participate? Especially since many of them had already hedged the risk of an AIG default. The counter-parties played it beautifully, almost as if they had designed the play themselves. The first lifeline to AIG was essentially an 11% loan, which was insane because it put its credit rating at further risk. It set the stage for the later problems because it was obvious that the rate put serious stress on AIG's ability to pay, and thus put its downgraded rating at risk again. The attempt to drive a hard bargain blew back, and this should have been obvious to the players. The counter-parties probably recognized the gift to them the minute they saw the loan's onerous terms for it obviously put AIG at further risk, thereby making their stuff that more valuable. The attempts to suggest that secrecy was best were politically dumb. Cover-ups are stupid, never seem to work, and are now being unpeeled. I think Geithner is not someone we would want to be at the helm of the Treasury during a crisis. The lapses in judgment were huge. He seems to be at the center of them.