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Black Hole AIG Needs Another $10 Billion

Posted Dec 10, 2008 09:02am EST by Joseph Weisenthal in Investing, Newsmakers, Recession
Related: aig, gs

From ClusterStock, Dec. 10, 2008:

After all the money AIG's had shoveled at it, why does it need another $10 billion? Because, as the Wall Street Journal reports, the money its gotten from the government are supposed to pay off its bad CDS bets -- essentially, the money went to retiring the underlying CDO --- but it's also stuck $10 billion on what were just bad bets, not necessarily designed to help clients manage risk.

The $10 billion in other IOUs stems from market wagers that weren't contracts to protect securities held by banks or other investors against default. Rather, they are from AIG's exposures to speculative investments, which were essentially bets on the performance of bundles of derivatives linked to subprime mortgages, commercial real-estate bonds and corporate bonds.

These bets aren't covered by the pool to buy troubled securities, and many of these bets have lost value during the past few weeks, triggering more collateral calls from its counterparties. Some of AIG's speculative bets were tied to a group of collateralized debt obligations named "Abacus," created by Goldman Sachs.

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