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Wednesday, March 4, 2009

FT front page roundup

Sorry, I've been slacking lately. It turns out finding the humor in epic human tragedy every day weighs on the soul. Anyway, news...

Stocks fell on Monday to their lowest level since 1996, when people still listened to Ace of Base.

David Moffett, who took over housing giant Freddie Mac only six months ago, discovered that life is demanding, without understanding, so he quit.

Ken Lewis, head of Bank of America, which has received a total of $45 billion in government assitance, told FT interviewers that it was a mistake to request the last $20 billion he asked for and that he shoud have asked for "only $10bn." Ken Lewis cannot hear himself talk.

AilIG became the biggest loser in corporate history by posting a $62 billion quarterly loss, largely due to the deteriorating situation in commercial mortgage-backed securities, which have until now held up better than residential. And the damage apparently is not over, as their books revealed a further $12 billion exposure in credit default swaps written on collaterallized debt obligations, the toxic assets that are at the heart of the financial crisis.

Even more interesting is news of a 'bad bank' set up by the Fed to clear AIG's balance sheet of toxic CDOs after the company was first nationalized. Cleverly named ‘Maiden Lane III‘, after Ben Bernanke’s favorite pornstar, the case illustrates the challenges facing the Fed and Treasury as they attempt to clear banks' balance sheets.
In November, the Federal Reserve Bank of New York set up a limited liability company called Maiden Lane III – backed by $5bn from AIG and borrowings of up to $30bn from the Fed – to resolve the situation. The idea was that Maiden Lane III would buy CDOs from AIG’s counterparties and then tear up the credit insurance issued by AIG.


In the days after the creation of Maiden Lane III, AIG and the Fed approached about 20 counterparties with an offer to buy
CDOs. By the end of the year, Maiden Lane III had paid nearly $30bn for CDOs with a face value of $62bn, AIG said.

AIG paid $32.5bn to terminate the credit insurance on the CDOs, recognising a 2008 loss of $21bn.

Counterparties received 100 cents on the dollar for the CDOs, but the prices paid by Maiden Lane III suggested that the CDOs were worth 47 cents on the dollar, said a person familiar with the matter.

Any sales of CDOs at a certain percentage below face value can trigger payouts on credit default swaps, leading to cascades of awfulness. But avoiding default triggers means paying disgustingly more than they’re actually worth. How to solve this? Fuck knows. Hooray for finance!

More hilariously, Hank Greenberg, former head of AIG, is suing the company for material misrepresentation after he bought shares at "inflated" prices. Greenberg, more than anyone, is responsible for AIG's foray into complex structured finance and credit derivatives that are the reason it failed. He was ousted in 2005 but remained the single largest shareholder, harboring fantasies of regaining leadership. For him to pretend to be the hoodwinked investor, in a company that he micromanaged for four decades, is simply beyond words. Hank Greenberg is a human dildo and these court decisions will prove definitively whether or not there is a God.

Barack Obama and Gordon Brown met to discuss the economic crisis before retiring to the Lincoln bedroom to cement the US and UK's "special relationship".

Nutcases in Pakistan shot up the Sri Lankan cricket team with rockets and machine guns, wounding several and killing six police officers.

German chancellor Angela Merkel and French president Nicolas Sarkozy decided to patch up their mutual hostility by invading Liechtenstein together.

And planet-huggers are complaining that the various stimulus bills being implemented around the world are too carbon-heavy, ignoring the fact that people’s concern for the environment is positively correlated with their net worth.

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