Of the $52 billion paid to AIG’s counterparties, Goldman Sachs was the biggest recipient: $13 billion, the entire balance of its claim. The amount was surprising: Banks like Merrill Lynch that had bought credit-default swaps from failed insurers other than AIG were paid 13 cents on the dollar in deals moderated by New York’s insurance regulator.
A spokesman from bond insurer MBIA Inc. quickly emailed to clarify that it was not a member of this particular “failed insurer” club and emphasise that despite lawsuits pending against his company over the recent split of its businesses the company has “steadfastly maintained that we fully expect to meet all of our obligations on time and in full.”
(The spokesman further explained that the monolines had, wisely, never written collateral provisions into its mortgage CDS contracts, thus protecting the insurers from the kind of inundation of collateral calls that was able to so suddenly sink AIG.)
Asked what precise “deals” the 13 cents figure referred to, a New York insurance commissioner spokesman declined to comment.
We did find one settlement from last August, cancelling eight credit default swap contracts worth $3.74 billion that Merrill Lynch had with the beleaguered bond insurer Syncora for $500 million, that conforms to that ratio, but we’re still awaiting insight from the story’s author Joe Hagan.
Notably however, that deal was inked weeks before the string of massive financial failures that nearly broke the system — meaning it might have set some sort of precedent or reference point, if only as a bargaining chip with the counterparties of AIG, a company that took exponentially greater risks that fell apart in an exponentially more desperate time.
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