Fingering AIG

Congrats to Zero Hedge for the prominent mention in Barron’s via Alan Abelson’s column:

“How did the banks, so many of which seemed to be slouching toward extinction, get their act together to the point where they were in the black in January and February?

In search of an answer, we turned up an intriguing explanation for this magical metamorphosis by Zero Hedge, a savvy and punchy blog focusing on things financial. Not to keep you in suspense, Zero Hedge fingers AIG , that repository of financial ills and insatiable consumer of taxpayer pittances, as the agent of the banks’ miraculous recovery.

But not quite the way you might think. As Zero Hedge explains, AIG, desperate to hit up the Treasury for more moola, decided to throw in the towel and unwind its considerable portfolio of default-credit protection. In the process, the badly impaired insurer, unwittingly or not, “gifted the major bank counterparties with trades which were egregiously profitable to the banks.” This would largely explain, according to Zero Hedge, why a number of major banks actually, as they claimed, were profitable in January and February. But the profits, it is quick to point out, are of the one-shot variety, and, ultimately, they entailed a transfer of money from taxpayers to banks, with AIG acting as intermediary.

Lacking any deep familiarity with the arcana of credit swaps and the like, we can’t swear to the accuracy of this analysis. But shy of conjuring up the Amazing Randi and have him unveil the truth, it strikes us as plausible — and easily as persuasive as many of the various explanations we have come across for the surprising and rather mysterious turn for the better by the banks. If by chance it proves out, it just might act as a sobering influence, and not just on the financial sector.

Very cool . . .

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Source:
Don’t Bank on It
ALAN ABELSON
Barron’s, APRIL 18, 2009
UP AND DOWN WALL STREET
http://online.barrons.com/article/SB124000857570530541.html

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