It are the new $78 mil for the credit standard exchanges with the multiple-market collateralized debt burden-a safety backed by obligations money from domestic and you will commercial mortgages, home security fund, and much more-you to definitely ended up most troublesome. AIG’s problems were made worse of the fact that these people were that-way wagers. AIG did not have people offsetting ranking that would profit when the the swaps within this market missing currency.

Securities Lending Rounds From the Tale

McDonald and you will Paulson’s investigation revealed that there can be a lot more on the condition than just the financing standard swaps. Ties financing destroyed the firm a great amount of money just like the really.

Securities financing is a very common monetary deal in which that facilities borrows a security out-of another type of and offer in initial deposit away from security, always dollars, for the financial.

State, as an example, you run a financing with a huge funding from inside the IBM. There may continually be explanations someone need to borrow the IBM shares, referring to a simple way to create some extra cash on brand new stock you have, McDonald claims. AIG was primarily lending out ties kept from the its subsidiary existence insurance vendors, central because of a good noninsurance, ties lendingfocused part.

Companies that lend bonds constantly grab that cash security and you can dedicate they for the something temporary and you may apparently safer. (more…)