...a most blurry place, when it comes to getting some restitution, evidently.
How AIG fell apart
By Adam Davidson
Thu Sep 18, 2008 1:55pm EDT
(The Big Money) When you hear that the collapse of AIG or Lehman Bros. or Bear Stearns might lead to a systemic collapse of the global financial system, the feared culprit is, largely, that once-obscure (OK, still obscure) instrument known as a credit default swap.
SNIP...
Who sells these CDSs? Banks, hedge funds, and AIG.
It's easy to see the attraction. Historically, bond issuers almost never go bankrupt. So, many banks and hedge funds figured they could make a fortune by selling CDSs, keeping the premium, and almost never having to pay out anything.
In fact, beginning in the late '90s, CDSs became a great way to make a lot more money than was possible through traditional investment methods. Let's say you think GE is rock solid, that it will never default on a bond, since it hasn't in recent memory. You could buy a GE bond and make, say, a meager 6 percent interest. Or you could just sell GE credit default swaps. You get money from other banks, and all you have to give is the promise to pay if something bad happens. That's zero money down and a profit limited only by how many you can sell.
SNIP...
Banks all over the world bought CDS protection from AIG. If AIG is not able to make good on that promise of payment, then every one of those banks has lost that protection. Overnight, the banks have to buy replacement coverage at much higher rates, because the risks now are much worse than they were when AIG sold most of these CDS contracts.
CONTINUED...
http://www.reuters.com/article/2008/09/18/us-how-aig-fell-apart-idUSMAR85972720080918
AIG -- just one company -- was bailed out to the tune of $1.6 Trillion with a T.
I'd like to know who it was who profited from their misfortune.
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