...which we will all see tomorrow in the annual leading article in the WSJ repeating another journal written in 1620 just before the sailing of the Mayflower. It is a wonderful piece that I used to read to my sons every year. Imagine, sailing across the ocean to God knows where on a leaky bucket not much larger than the one owned by Bernie Madoff for a dream to be free. Every year, I love the Journal for printing that article.
Last week, however, I hated it. My Friday's posting was to be a follow-up on TheSuit's testimony or to be precise, one little nugget of the same. Of course, the buggers at Dow Jones had to get to it before me but I came to the conclusion that I should cover it BECAUSE IT WAS MY IDEA IN THE FIRST PLACE (they print earlier than I do) and it is important.
What everyone overlooked except for the Journal and me was The Suit rather blandly stating that Credit Default Swaps (CDSs) in the case of AIG really didn't matter. As the Journal said, "Hello?" Well if credit default swaps didn't matter in the great scheme of things, what the hell is all the excitement about these awful things called derivatives? With all of this regulatory nonsense going on might we be looking at the wrong tree in the forest.
As I have said repeatedly, a CDS is nothing more than an insurance product written on an existing risk generally or most often expressed (the risk) as a bond, a loan or some form of documented liability of a borrower. Now once the original CDS is written the purchaser can market it for oodles of purposes but cut through all the nonsense and there is still the original writer of the risk; in our case AIG. Again, as I have said a half-dozen times, if all of a sudden there was a bid out there from the biggest pile of money in the world (the Fed) on the CDS-covered asset, the credit worthiness of the AIG structured finance unit is no longer an issue. There would still be hell to pay among secondary holders but hey, nothing that can't be settled among gentlemen. But that did't happen. Originally we all thought that it couldn't happen but The Suit has indicated that that portion of AIG's business was manageable. So, one might ask one's self, "Self, where was the problem?"
Before we start rearranging the entire regulatory landscape it seems to me that it might be a good idea to use AIG as a test case in an attempt to discover where it is that the problems truly lie. If we were to do this I have a suspicion that the trail might lead not to those areas already investigated in nauseating detail--with little to show for it I might add--but back to the undiscovered country such as the core businesses of AIG--the straight-up insurance business-- overseen one might point out not by the Federal reserve but by the Insurance Commissioner of the State of New York and the role played from the git-go in this mess by the State's AG, the odious Mr. Cuomo. Nothing may come of it but would we not have a fuller understanding of what really happened? Ponder this over the Turkey and football this weekend. Let us all give thanks for what we have and also for those brave souls it set forth 400 years ago and made all of this happen.
See you next week.
would the failure of AIG really imperiled the global economy? I doubt it.
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