They should bite the bullet and temporarily guarantee certain bank debt obligations to reassure banking counterparties.
According to Reuters, the two-year U.S. interest rate swap spread a gauge of financial system stress was quoted at a record high 166.5 basis points in Asia, suggesting that concern about defaults among banking counterparties were worsening.
The middle class is teetering on the brink of collapse just as surely as AIG was last fall -- only this time, it's not just one giant insurance company (and its banking counterparties) facing disaster, it's tens of millions of hard working Americans.
They are also the banks' counterparties in transactions such as credit-default swaps.
In announcing the insurance department approval of the split in 2009, Eric Dinallo, then superintendent, stated, "This deal is fair to all policyholders — the bank counterparties and other policyholders of the structured financings and the owners and issuers of municipal bonds".
When the F.D.I.C. says that a complex institution like Citigroup is insolvent, the amount of total losses will be unclear, and the harm to individual bank counterparties will be hard to forecast.
With sweet justice, some think, the many foreign hedge funds that acted as banks' counterparties have borne the losses, forcing some to quit Japan.The accounting loophole has been closed in other rich-world jurisdictions.
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.
Harvard's investment-banking counterparties began making margin calls on the university to put up more collateral for its $7.2 billion in dubious-derivative exposure.
Andrew Lahde closed his one-year-old fund Lahde Capital last month after 866% returns because he said his bank counterparties had gotten too risky to trade with.
Also included in the documents turned over to the committee is e-mail indicating there wasn't a serious effort to force the bank counterparties to take a discount, supporting a contention by Goldman Sachs Chief Executive Lloyd Blankfein earlier this month that no one ever approached him with such an offer.
