Re:The Real AIG Scandal
by anamax on Wednesday March 18, 2009 @07:08PM
(#522515)
> Being modeled as "very safe", my impression again, is that CDS were in fact often considered "off-balance-sheet-instruments". But that's again secondary...
That's wrong and the error is not "secondary". If something is "off-balance-sheet", it's useless to a bank. Banks need on-balance-sheet assets to match their liabilities. And assets are heavily regulated.
> Bank deposits are and have been rightfully regulated actively in terms of explicit
Deposits, the money that customers put in banks for "safe keeping" (and interest), aren't regulated and there's no reason to regulate them.
Deposits are liabilities, promises that the bank has made. Assets are what a bank keeps so that it can return deposits to customers, so it can satisfy its liabilities.
When you deposit $100, the bank books $100 in liabilities and $100 in assets. It can exchange the $100 cash that you gave it for assets of equivalent or greater value, but all that is regulated so that the bank can pay you $100 when you ask for it.
Yes, deposits are insured, but that's something entirely different. And, the way that deposits are insured is by regulating assets.
> The OTS might indeed have looked at the risk of failure which AIG's actions involved for its depositors, its stock holders and even for Uncle Sam in his role as deposit insurer.
AIG's problems had nothing to do with returning money to depositors.
That's wrong and the error is not "secondary". If something is "off-balance-sheet", it's useless to a bank. Banks need on-balance-sheet assets to match their liabilities. And assets are heavily regulated.
> Bank deposits are and have been rightfully regulated actively in terms of explicit
Deposits, the money that customers put in banks for "safe keeping" (and interest), aren't regulated and there's no reason to regulate them.
Deposits are liabilities, promises that the bank has made. Assets are what a bank keeps so that it can return deposits to customers, so it can satisfy its liabilities.
When you deposit $100, the bank books $100 in liabilities and $100 in assets. It can exchange the $100 cash that you gave it for assets of equivalent or greater value, but all that is regulated so that the bank can pay you $100 when you ask for it.
Yes, deposits are insured, but that's something entirely different. And, the way that deposits are insured is by regulating assets.
> The OTS might indeed have looked at the risk of failure which AIG's actions involved for its depositors, its stock holders and even for Uncle Sam in his role as deposit insurer.
AIG's problems had nothing to do with returning money to depositors.