A search of the document fails to return any inclusion of the words “of sound mind” on the part of anyone signing it. So, no, there ain’t no sanity clause.

You may well be correct that such a waiver is a standard term and you are certainly correct that such a waiver is a “serious concession and it’s not given up without something in return”.

But the fact is this concession could have been forced because the counterparties WERE getting something very serious in return, payment on their CDS’s at par rather than what they would have recieved had AIG failed. Which is what would have happened absent the Fed bailout. In fact the failure to extract this concession is of a piece with the Fed’s failure to negotiate a haircut.Both instances were simply handouts to the banks.

No. They agreed to use the standard terms that everyone uses. That language, or language of similar meaning is boilerplate in just about every credit default swap termination agreement. The notion that there is anything unusual about it is just silly. In fact the documents look boringly like every other CDS termination agreement. I don’t know anything about who did the deal or any of that other stuff in your rant, but I do know that.

If you go to any law firm that handles these agreements – reputable or otherwise – and look at their standard docs, it’ll have those terms. They’ll take them out, if the client wants them taken out, but it’s a serious concession and it’s not given up without something in return. That’s pretty rare though, because the whole point of the CDS termination is that everyone agrees that by making the payment, the agreement has been fully satisfied and everyone can go their separate ways and not worry that next month they’ll have to defend a lawsuit for breach of contract.

“A day after he dismissed a federal bailout for American International Group, Republican John McCain announced Wednesday that circumstances had forced him to shift his position and that he supported the proposed $85 billion rescue of the insurance giant.
McCain, who in recent days has slammed what he called Wall Street greed and corruption for causing the latest downward spiral of the stock market, said he had to change his position on AIG to protect millions of Americans who could be hurt if the company was forced to seek bankruptcy protection.
“The government was forced to commit $85 billion,” McCain said in a statement. “These actions stem from failed regulation, reckless management and a casino culture on Wall Street that has crippled one of the most important companies in America.”

hmmmmmm wonder where Mr McCain stands on Wall Street Reform today. Isn’t it time for a changing of the guard in Arizona?

Its terms, upon examination, run contrary to ostensible interest of the bailout funder, who would be the American taxpayer. They do, however, benefit parties proximate to ostensible trustees of the bailout at the New York Fed. The situation is not without partiality, so voiding the covenant.

That there’s nothing customary about such terms being flagrantly inflicted after the fact should be as clear as ones resolve never to tolerate anything like this travesty of a bailout ever happening again, while still going after all the culprits behind the last one, some of whom presently continue holding down jobs at the NY Fed and in Washington DC.

[Contextual] The waivers are embedded in the CDS Termination Agreements, which tore-up both AIG’s and their Counterparties’ obligations w/r/t the covered CDS-on-ABS. Note that the underlying referenced ABS were simultaneously purchased at [effectively] par value by the FRBNY/AIG-funded Maiden Lane III SPV.

The waiver is bilateral. Both AIG and Counterparties agree to release each other from claims.

The waiver language appears consistent in many respects to generic claims release terms in a variety of termination contracts, including the language referring to the period “from the beginning of the world to the Termination Date.” See: http://www.google.com/search?hl=en&safe= active&client=firefox-a&rls=org.mozilla% 3Aen-US%3Aofficial&q=%22from+the+beginni ng+of+the+world%22+%22termination+agreem ent%22+claims+release+unknown&aq=f&aqi=& aql=&oq=&gs_rfai=

The CDS says that if X happens, AIG pays. When AIG pays, both parties agree that the contract has been satisfied, and release each other from any claims under the contract. The reason this is standard is that everyone wants to be clear and in agreement that the contract is fully satisfied and they can walk away without worrying about the contract going forward.

AIG shareholders were no doubt run over by AIG management, but they then had what was left in their pockets picked by the government, and most of the public still believes AIG was “bailed out”.