Erm, Will?

A certain young Master Hutton explains the world to us:

AIG, the US\’s largest insurance company, would still be solvent if it had not bought hundreds of billions of now valueless credit default swaps in the deregulated financial slum that was London. So it goes on.

Something of a pity there really. If AIG had bought hundreds of billions worth it would have made vast profits. As those CDS\’ are worth huge amounts. Indeed, those who did buy them from AIG have made huge profits.

For AIG was not buying CDS, it was selling them. As an insurance company it was offering insurance, akin to writing a put on the value of the underlying bonds.

(The true problem was that with an AAA credit rating AIG did not have to post collateral. The day it lost that AAA rating it had to post huge amounts of collateral and thus was bust.)

It\’s a fairly crucial distinction in a market, the difference between buying and selling, and you would hope that a commentator upon financial markets would be aware of it. Not so Ouuur Wullie apparently.

One obvious and long-standing grievance is that the rich countries are over-represented. Brown should say that part of his global deal is his recognition that the EU should represent Europe in the IMF and that individual EU members should thus lose individual votes. This opens the way for the IMF to have a fairer and rebalanced constitution, crucial to its legitimacy. The same principles should be extended to the World Bank. And both should regularly be held to account by a similarly reconstituted United Nations.

A quite remarkably absurd idea. The EU would be promoting the interests of the eurozone, not all 27 members. But take it just as another proof that Naomi Klein was wrong, it isn\’t the neo-liberals who use crises to advance their causes, but the Statists.

3 thoughts on “Erm, Will?”

  1. As I was once told during a heated political argument…

    “Facts don’t matter! It’s principles we’re discussing here!”

  2. I love this discussion about the rich being over represented in the IMF. We pay the bills for gods sake. If the poor world ran it, they would create rules for handing out cash left right and centre.

  3. Why would the EU be representing just the Eurozone, not the wh0le EU?

    Also the problem with AIG was not it lost its AAA credit rating, but that it offered insurance on the world financial system collapsing which it could not in fact pay out.

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