A.I.G. Secrets: Maybe Too Much Information Helps Speculators Speculate?

Here is Gretchen Morgenson at the N.Y. Times once again--as in didn't she just report most of this a week or so ago-- bringing up the issue of A.I.G. and how taxpayer money given to the company has been used to pay off counterparties who had purchased credit insurance from the huge firm.

It is asked why these parties are not revealed in total, and why money was given to make the counterparties whole, when there have been no defaults on insured securities to cause losses to those counterparties. Indeed one can question the governments desire to close out the contracts at full price.

SUCH secrecy raised hackles because the insurance claims were paid off in full, even though widespread defaults on the underlying debt have not occurred. Why, many people wonder, did the Fed make A.I.G.’s counterparties whole on losses that have not happened yet? Why didn’t it force these financial companies to close out the contracts at a discount, making them take what is known on Wall Street as a “haircut”?

Robert Arvanitis, chief executive of Risk Finance Advisors in Westport, Conn., and an expert in insurance, speculated that the United States was afraid that A.I.G.’s foreign bank counterparties would suffer large hits to their capital cushions, the amount they must set aside in case of losses.

“If somebody takes away the A.I.G. guarantee, all of a sudden the banks’ capital ratios look bad,” he said. “It might have stretched some of these banks.”

Still, Mr. Arvanitis said, it is not clear that the government had to pay out 100 percent of the contracts’ value to all the counterparties. Healthier institutions could have been persuaded to take a haircut, he said. “That is what tough negotiators do,” he added.

(N.Y.Times)

But do we really need to know the exact details of who is insuring what, and for how much? That is handy information for those controlling a large pools of cash, like certain hedge funds. Of course knowing who got paid out on their contracts would imply greater stability for those companies and thus upward pressure in their securities; nevertheless too much detail can lead to speculation that might catch some delicately purched company unawares.

They always push for disclosure on behalf of taxpayers, but more likely it's the politicians who are looking for some upper hand (and underhand) to play.