AIG Insurance Unit Admits To Dealing In Credit-Default Swaps

nytimes.com:

Ever since the American International Group nearly collapsed, the conventional wisdom has been that the exotic derivatives that drove it to the brink were the product of a lone, unregulated subsidiary in London. The Federal Reserve chairman, Ben S. Bernanke, called the London branch "a hedge fund, basically, attached to a large and stable insurance company."

But the suggestion that A.I.G.'s core insurance business did not dabble in derivatives is not quite true.

Read the whole story: nytimes.com

Comments

[melton244]

11:32 PM on 02/01/2010

Duh???? As if we didn't already know this.................

[pjwrites]

03:49 PM on 02/01/2010

As one financial blogger often says (can't remember who, sorry): if you can't explain it to your mom, it's unnecessarily complicated. And if it's unnecessarily complicated, you can bet your A$$ it's criminal.

[nopilikia]

10:35 PM on 02/01/2010

It was and still is. Thats why Congress exempted Wall St. and only Wall St. from state bucket shop (gambling on CDSs) laws, knowing it was illegal and prosecutable. They put it in the Gramm-Leach-Bliley Act of 1999 (a.k.a. Securities Modernization Act of 2000). In the last year both parties have failed to address or make this fact known to the public. Just goes to show what a horses a-s our Congress is.

[huff po fan]

02:45 PM on 02/01/2010

Reqired total transparency has to be mandatory if we are going to allow CDFs to exist or banking and insurance will continue to be a shell game.

[karen1p]

11:49 AM on 02/01/2010

“But even after A.I.G., we still don’t have a proposal for federal regulation, or even enhanced disclosure, and that’s the dirty secret here.”

Yes, we all know and that is where the populace rage is coming from.

[sonofsamphm1c]

01:59 PM on 02/01/2010

Their are significant competing proposals in congress for regulation, including a systemic risk regulator, whose job would be to identify systemic risks, like that presented by AIG, much earlier, and there is a resolution authority, which the Federal Reserve started asking for just as soon as they were presented with the AIG mess, that would allow the Federal Government to, in an orderly fashion, dismantle entities that are too big to fail - eventually firing/prosecuting executive management and wiping out common shareholders.

[karen1p]

09:50 PM on 02/01/2010

There has been NO INDICTMENTS!!!!! IT HAS BEEN MONTHS! We are through thinking that government will regulate or prosecute anything.....and we hate them for it.
We are not stupid and that is what they are taking us for.

[nopilikia]

10:55 PM on 02/01/2010

There's no secret as to how it happened, just how much money has really been lost. It happened because the Gramm-Leach- Bliley Act 0f 1999 (a.k.a. Securities Modernization Act of 2000) made gambling on CDSs legal again for Wall St. I know why Congress doesn't want this fact to come out so close to an election. But the media, I have no clue?

[David Fiderer]

10:30 AM on 02/01/2010

The most important part of the Times story is in the next-to-last paragraph: "When the markets soured in 2008, the company realized a $52 million loss as it terminated many of the contracts." The approximate loss at AIG Financial products, on its $62 billion CDO risk portfolio, was about 500 times larger. In the scheme of things at AIG, a $52 million was less than a rounding error. Moreover, these swaps were for investment-grade corporate bonds, for which market prices, and mark-to-market postings, can be ascertained quite easily. There was no such transparency at the CDOs, which wiped out AIG's solvency.