Aig Failures

What was once the unthinkable occurred on September 16, 2008. On that date, the federal presidency gave the American Investment Group - better cognize as AIG (NYSE:AIG) - a bailout of $85 billion. In exchange, the U.S. goernment certain nearly 80% of the firms equity. For decades, AIG was the worlds biggest insurer, a corporation known around the world for providing protection for individuals, companies and separates. But in September, the company would have gone under if it were not for government assistance. High Flying The epicenter of the near-collapse of AIG was an office in London. A division of the company, entitled AIG Financial Products (AIGFP), nearly led to the crepuscule of a pillar of American capitalism. For years, the AIGFP division sold insurance policy against investments gone awry, such as protection against interest mark changes or other unforeseen economic problems. But in the late 1990s, the AIGFP discovered a new way to soak up money. A new financial tool known as a collateralized debt obligation (CDO) became prevalent among large investment banks and other large institutions. CDOs lump various types of debt - from the really safe to the very risky - into one bundle. The various types of debt are known as tranches.

Many large investors holding mortgage-backed securities created CDOs, which included tranches filled with subprime loans. (For more(prenominal) on this concept, check out our Subprime Mortgage Meltdown particular(a) feature.) The AIGFP was presented with an option. Why not insure CDOs against default through a financial product known as a address default swap? The chances of having to pay out on this insurance were highly unlikely, and for a while, the CDO insurance plan was highly successful. In about five years, the divisions revenues rose from $737 million to over $3 billion, about 17.5% of the entire companys total. (Read _Credit Default Swaps: An Introduction_ to take care more about the derivative that took AIG down.) One large lummox of the... If you want to get a full essay, order it on our website: Ordercustompaper.com

If you want to get a full essay, wisit our page: write my paper