AIG in Hindsight

Robert McDonald and Anna Paulson

No WP-2014-7, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: The near-failure on September 16, 2008, of American International Group (AIG) was an iconic moment in the financial crisis. The decision to rescue AIG was controversial at the time and remains so. Large bets on real estate pushed AIG to the brink of bankruptcy. In one case, AIG used securities lending to transform insurance company assets into residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs), ultimately losing at least $21 billion and threatening the solvency of the life insurance companies. AIG also sold insurance on multi-sector CDOs, backed by real estate assets, ultimately losing more than $30 billion. These activities were apparently motivated by a belief that AIG?s real estate bets would not suffer defaults and were ?money-good.? We find that these securities have in fact suffered write-downs and that the stark ?money-good? claim can be rejected.

Keywords: American International Group (AIG); Bankruptcy; Insurance (search for similar items in EconPapers)
JEL-codes: G22 G23 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2014-10-22
New Economics Papers: this item is included in nep-ias
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Citations: View citations in EconPapers (4)

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Journal Article: AIG in Hindsight (2015)
Working Paper: AIG in Hindsight (2015)
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