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Sunday, March 01, 2009

Must reading:

This NYTimes story about AIG is a-freaking-mazing. Excerpt:

A quarter of a trillion dollars, if it comes to that, is an astounding amount of money to hand over to one company to prevent it from going bust.

Let it go bust.

As the story details, the losses are in credit default swaps, which are insurance policies written against mortgage-backed securities. AIG wrote lots of them, with premiums that were ridiculously low, pocketed the cash, and now that the housing bubble has burst, can't cover the policies.

Sounds like holders of mortgage-backed-securities should take the loss (since AIG is unable to compensate). What's so complicated about that?

posted by Quiddity at 3/01/2009 02:49:00 AM

1 comments

To be sure, most of A.I.G. operated the way it always had, like a normal, regulated insurance company. (Its insurance divisions remain profitable today.) But one division, its “financial practices” unit in London, was filled with go-go financial wizards who devised new and clever ways of taking advantage of Wall Street’s insatiable appetite for mortgage-backed securities.

You would think that the New York Times would at least get the name of AIG's Financial Products unit right in all their hyperventilation.

The Washington Post ran a set of much better articles on the details of AIGFP's downfall:

The Beautiful Machine
A Crack in the System
Downgrades and Downfall

By Anonymous, at 3/02/2009 10:58 PM