AIG - Creative Till the End

From the WSJ:

American International Group Inc. in recent weeks has sought to rally support among investors and credit-ratings firms for a controversial deal: the sale of securities backed by insurance policies on the lives of older people.There have been few offerings of these types of securities, which critics have called "death bonds," "blood pools" and "collateralized death obligations" because they pay off when the insured dies. And AIG's effort so far isn't panning out. Standard & Poor's recently declined to provide a rating, an essential step in selling such securities to most investors.AIG's push highlights the giant insurer's outsize role as an investor in the market, known as life settlements—a role that has largely gone unnoticed.The giant insurer's life-settlements portfolio totals about $18 billion in anticipated death benefits, according to the company's financial filings—or well over a third of the estimated $45 billion that has changed hands since the market revved up about a decade ago.
Under AIG's recent proposal to sell securities based on part of its portfolio, a subsidiary of its Chartis property-casualty unit would collateralize notes worth $900 million with 1,157 policies acquired since 2001. AIG would sell $250 million to outside investors, according to its marketing materials.

Chartis also has been involved with life settlements in another way. It has sold "lender protection" insurance to a finance firm that lends to people to help them pay premiums on multimillion-dollar life policies, according to a prospectus for a stock offering by Imperial Holdings Inc. earlier this year.Chartis sold the "lender protection" coverage to Imperial from 2008 through 2010. It came in handy for Imperial, because borrowers, who typically take out two-year loans, have defaulted on 490 of 513 loans covered by the insurance and so far maturing, according to another Imperial filing. If borrowers cannot sell their policies profitably in the secondary market, Imperial can turn to AIG.As of Dec. 31, AIG had made good on 479 claims, paying more than $177.8 million and getting the policies in exchange, the filing shows. Imperial declined to comment.

Yes, this is the same AIG that took the other side of just about every derivative conceivable and blew up in the process.  Some firms never learn - even when owned by the US government.  I have reviewed these investments historically - even a synthetic one based on demographics and samples - and the investment is unwieldy.  Lets not forget about the actuarial assumptions used when underwriting the policy, how many investors can replicate that on a pool of policies.  Once again, we will enter the pool characteristics and sample data investment approach - seeing how well it worked out with past investments.  


Go figure.

Citizenship in the Banana Republic Formerly Known as the United States

Found the following amusing:

President Barack Obama says most Americans are confident that he is American-born and bred and says the “birther” issue could be a problem for Republican challengers in the 2012 presidential campaign.
Obama addressed the persistent questions about his place of birth when he was invited, during an ABC News interview, to size up his potential opponents.
He was also asked his thoughts on Donald Trump’s rise to the top of the Republican field on “fantasies” about the president’s background.
Obama seemed amused.
“Over the past two-and-a-half years there’s been an effort to go at me in a way that is politically expedient in the short-term for Republicans — but creates, I think, a problem for them when they want to actually run in a general election where most people feel pretty confident the president was born where he says he was, in Hawaii,” Obama said.
“He doesn’t have horns,” he added, laughing.

Friends, with three theaters of military operations and the financial situation of our fiscal banana republic, this is what the president feels the need to address?  This is a political issue?  I personally don't care if he is an extraterrestrial, it is the downfall of the republic and the inability of the elected "leaders" (yes, holding back the laughter) to rectify these problems that concern me.  


The heat the rating agencies have been taking lately (well deserved, I might add) over CDOs, CLOs, mortgages etc. is nothing compared to their outright ineptitude shown by the United States AAA rating. 

Greece - Sandy Beaches and Distressed Debt

Ahhh Greece, founder of democracy, philosophical masters, land of nice beaches good food and pretty women. Oh yeah, lets not forget fiscal austerity that stands no chance, land of the tax dodger and possibly debt restructurer.  Just wait for this one.  Its not like the country has no experience being in default, problem now is that its banks as well as European banks are gonna get whacked.


Greek 10 Year-Bund spreads just passed 1,000 for the first time ever and were last trading north. Following this statement from Germany's Hoyer, it seems all hell is about to break loose for peripheral spreads.

• *GERMANY WOULD BACK VOLUNTARY GREEK RESTRUCTURING, HOYER SAYS
• *GREEK DEFICIT CUTTING MAY NOT BE ENOUGH, HOYER SAYS
• *GERMANY ‘WORRIED’ ABOUT GREEK FISCAL DEVELOPMENTS, HOYER SAYS
• *GREEK DEBT RESTRUCTURING `WOULD NOT BE A DISASTER,' HOYER SAYS
• *GERMAN EUROPE MINISTER HOYER SPEAKS IN INTERVIEW IN BERLIN

Rising Greek yields reflected disappointment that the government only presented the outline of fresh fiscal plans but left the details to be spelled out after Easter.

Don't think the Easter bunny is going to leave an egg the size of Wisconsin full of money folks.


It also outlined how it intends to raise 50 billion euros from privatisations by 2015, a target which many analysts and Greek politicians see as optimistic. It said it planned to promote real estate asset sales from October 2011.


How much for Rhodes?

Portugal - Periphery Pain Continues

AP:

Portugal managed to raise about euro1 billion ($1.4 billion) in a Treasury bill sale Wednesday but paid a high rate for the cash as it appears inevitable the debt-stressed country will soon need a massive bailout.

The government debt agency sold euro560 million in T-bills that mature in October and euro450 million in bills maturing in March next year.

But investors asked for high interest rates -- 5.11 percent and 5.9 percent -- to part with their money. In similar auctions last month, Portugal paid a rate of just under 3 percent on 6-month bills and 4.3 percent on 12-month bills.

But wait, it gets better:

Reuters:  Two business newspapers said the public social security fund has been selling overseas financial asets in the last few days to help finance the state by buying sovereign debt at auctions. 

Back to AP:  The president of the Portuguese Association of Banks, Antonio de Sousa, said substantial financial support is "urgent."  "The banks have no more credit left to give," he was quoted as saying Wednesday by national news agency Lusa. 

Bottom line:  Portugal has no government, its borrowing costs are soaring, banks are no longer willing buyers so the social security fund has had to step in to buy rapidly depreciating bonds.  Does this sound like it is going to end well? 


The good news:  Overseas investors willing to roll the dice at the Portugal table are getting fat yields and an appreciating currency: