stefalb

Why AIG Wasn't Allowed to Fail

Because the overall risk position at AIG is about $360 billion. If there is no general bail out of the banking system and very big corporations then more of the CDS (insurance) money has to be paid out. As long as the systemic slide is not stopped they will ask for more money. That's why the view of most commentators is very short sighted. A systemic problem is most easily and cheaply addressed BEFORE the domino start to fall. Yes, AIG should have never made those bets, so shouldn't have the banking industry and yes, they did it because there was no regulation and in 2005 federal regulators allowed the leverage in the banking industry to go to a factor of 30-40 from 12. Now we have to deal with the mess as gracefully as possible and letting them fail is not an option because it would affect all of you who have some form of assets. Those who have nothing can loose nothing so they won't be affected but they also couldn't get work. So to prevent this problems in the future much more financial regulation and a clearing house for ALL derivatives is desperately needed and that's what we should all fight for. I know that many have an ideological problem with more regulation but the evidence allows for no other conclusion!


On Mar 17 04:23 PM Websage wrote:

> Thanks for explaining this in a clear and concise way Felix. So,
> are CDSs no longer a systemic risk, thanks to US tax payers? Did
> we save the world?
>
> Is AIG out of this business now? I would think so, but not sure.
> Since the government owns AIG they certainly should be out of the
> CDS business? But, why does AIG still need help?