What We're Hearing

The AIG "counter parties" who received credit default swap payouts from the "government-owned" insurer are an interesting lot. (Its all in AIG's new SEC filing.) Several were key players in the subprime securitization business during the boom years. The group includes: Merrill Lynch, HSBC, Royal Bank of Scotland, and Deutsche Bank, most of which owned subprime lenders and/or provided warehouse lines of credit to non-banks. If they were providing warehouse lines that means they were creating subprime ABS and CDOs too. But the question then becomes: did they purchases credit default swap coverage from AIG to hedge their positions or were they speculating? It's unclear from the SEC filing but it appears that two of the 15 banks who got payouts from AIG were speculating…