Posted On: November 17, 2008, 12:54 pm CST

Posted By: Bang

You must think of the counterparty in these contracts. Thats who is getting the bulk of this $150B loan/bailout.

Back in the day GS + MS (on this side of the pond) and big european banks like UBS + RBS were big players in the collateral bond market. They were making big fees packaging the loans and selling them off. In what they assumed were no risk deals as they bought CDS contracts thru AIG to protect these packages.

Here lies the problem.
Should GS + MS and the host of other European banks be paid for their CDS placed thru AIG?

Of course Paulson thinks so. And he is using tax dollars to create a large guarantee association for these CDS with no dollar cap in the name of AIG.

I think "NO". There should be caps for these counterparties on the amount they take of US taxpayer provided funds.

Of course this would require AIG to be in receivership which is what they are but under some treasury disguise.