Just when one thought every imaginable taxpayer bailout scheme had been seen, experienced and in many cases, forgotten, here comes AIG once again. The specifics come from Deutsche Bank's Joshua Shanker initiation of coverage report on AIG (naturally with a Buy rating, $34.00 target price), where within the fine print he notes: "the company believes there may be bargains available from buying RMBS securities from European banks seeking better positioning under Basel III requirements. " Prudently, he adds: "We note that increased yield, in this regard, also carries with it increased risk." Translated this means that AIG is about to do for European banks what the ECB so far has been unwilling and/or unable: namely to transfer the risk associated with European banks' massive ongoing exposure to the continuously collapsing US housing market back to the US taxpayer, in the form of AIG, which was bailed out once, and which will certainly be bailed out again, when the time comes.
As a reminder, AIG was rejected by the New York Fed in its attempt to repurchase the very same loans that were part of the package that sent the company into bankruptcy, only to be rescued in the last minute by Hank Paulson, who flipped on his decision to kill Lehman (thus making Goldman the Wall Street fixed income OTC monopolist) by providing hundreds of billions in order to unwind Joe Cassano's massive wrong way bet.
As for how much RMBS will AIG soon transfer from European taxpayer "backstopping" and back to US? Roughly $21 billion worth.
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