BOHICA*-Brace for the Tsunami: Fitch, S&P Downgrade AIG (Updated)

Naked Capitalism has been the go-to site for the last three days. I can't commend them strongly enough for both their timeliness and their professional triage, sorting thru the deluge of news to the stuff that actually matters. I can't count how many times I've linked to NC in the last 72 hours.
I've been at the market for a long time and can dismiss a poseur at 100 paces. I've not seen NC make an error of fact or an egregious bias of opinion. It's pretty impressive.
From Naked Capitalism:

I have no idea what the morrow will bring, but if it is only as bad as Monday's trading, we should all consider ourselves lucky.

Ftich dowgraded AIG to A with a negative watch (hat tip reader Steve)

S&P downgraded AIG to A-2 with a negative outlook as reported on CNBC (hat tip readers Scott and Michael. I don't see a link to a press release yet on S&P's site). Update 9:15 PM, it's now on Bloomberg. The cut was from AA- to A- on senior debt; the A-2 is the counterparty risk rating.

This downgrade triggers the requirement that AIG post more collateral. I am looking for confirmation, but this is what I saw in terms of consequences. From Bloomberg:

A ratings cut may have ``a material adverse effect on AIG's liquidity'' and trigger more than $13 billion in collateral calls from debt investors who bought the swaps, the insurer said in an Aug. 6 filing. AIG has already posted $16.5 billion in collateral through July 31. A downgrade could also set off early termination of swaps that may cause $4.6 billion in payments, AIG said.

The is going to lead to massive counterparty defaults in the credit default swaps market, an event we and others had warned about for some time....MORE, with updates.

*BOHICA
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