*how much you wanna wager the Hedge Funds are their own Hedge Funds. What I mean is Goldman Sachs' hedge fund, Morgan Stanley' hedge fund, Merrill Lynch' AND Bank of America' hedge fund? So the LEGAL question becomes: when did these Hedge Funds buy the insurance? And what did they know. Claiming AIG was stupid to enter into these transactions when they did will not be a defense.
By SERENA NG
Some of the billions of dollars that the U.S. government paid to bail out American International Group Inc. stand to benefit hedge funds that bet on a falling housing market, according to people familiar with the matter and documents reviewed by The Wall Street Journal.
The documents show how Wall Street banks were middlemen in trades with hedge funds and AIG that left the giant insurer holding the bag on billions of dollars of assets tied to souring mortgages. AIG has put in escrow some money for at least one major bank, Deutsche Bank AG, whose hedge-fund clients made bets against the housing market, according to a person familiar with the matter. The money will be released to the bank if mortgage defaults rise above a certain level.
In essence, while the U.S. government is busy trying to prop up the housing market --by trying to limit foreclosures, among other things -- it is simultaneously putting up cash that could be used to pay off investors who bet housing prices would tumble and many mortgage holders would default.
It's unclear how much government money might eventually flow to hedge-fund investors. Overall, the government has committed up to $173.3 billion to bail out AIG. Of that amount, AIG's housing-related bets have cost U.S. taxpayers some $52 billion.
The transactions worked like this: Investment banks such as Goldman Sachs Group Inc. and Deutsche Bank sold financial instruments to hedge funds letting them bet that mortgage defaults would rise. These instruments were credit default swaps, a form of insurance that pays out in the event of a debt default.
It is not known which hedge funds made those bets with specific banks. However, several large funds made big, ultimately profitable, wagers that mortgage defaults would increase. more...
No comments:
Post a Comment