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AIG: New Math for Understanding What Went Wrong

The historical data used to model did not reflect the positive feedback loop that increased availability of mortgage funds to the least sophisticated borrowers/buyers would have on home prices.

AIG and the Free Lunch Myth

"You should start increasing the price-fast! You should also pay sharp attention to that gnawing feeling in your stomach that these folks know a hell of a lot more than you do about what's going on."

Billp's comment is spot on. Also, AIG (and the entire CDS market) violates a fundamental law in the insurance indusrty: you can only sell insurance to those who have an insurable interest. Which means buyers of the CDS must hold the underlying security or debt to have an insurable interest. This restriction alone would have eliminated the speculation and really contained the CDS market.

America Buys AIG

"The very fact that the Fed is involved speaks loudly to us that no private company believes that this is a prudent loan."

Actually, it's too big for a private company to take on, particularly in this market when there is no money to lend. The articles I've read have described this as a collateralized bridge loan to get AIG through this liquidity crisis. Apparently, there is enough assets there to collateralize this when the assets are liquidated in an orderly fashion as opposed to a distress sale. For providing this bridge facility, the government gets 80% of the company. If it works out as planned, it's a good deal and hopefully stops a potential worldwide financial crisis.