The AIG Bailout

49 Pages Posted: 19 Feb 2009 Last revised: 4 Apr 2015

William K. Sjostrom Jr.

University of Arizona - James E. Rogers College of Law

Date Written: November 1, 2009

Abstract

On February 28, 2008, American International Group, Inc. (AIG), the largest insurance company in the United States, announced 2007 earnings of $6.20 billion or $2.39 per share. Its stock closed that day at $50.15 per share. Less than seven months later, however, AIG was on the verge of bankruptcy and had to be rescued by the United States government through an $85 billion loan. Government aid has since grown to $182.5 billion, and AIG’s stock recently traded at less than $1.00 per share.

The Article explains why AIG, a company with $1 trillion in assets and $95.8 billion in shareholders’ equity, suddenly collapsed. It then details the terms of the government bailout, explores why it was undertaken, and questions its necessity. Finally, the Article describes the regulatory gap exploited by AIG and offers some thoughts on regulatory reform.

The Afterword for this paper is available at the following URL: http://ssrn.com/abstract=2588871

Keywords: credit default swaps, CDS, derivatives, American International Group, AIG, Commodity Futures Modernization Act

JEL Classification: K20, K22, G8, G28, G38

Suggested Citation

Sjostrom, William K., The AIG Bailout (November 1, 2009). Washington and Lee Law Review, Vol. 66, p. 943, 2009. Available at SSRN: https://ssrn.com/abstract=1346552

William K. Sjostrom Jr. (Contact Author)

University of Arizona - James E. Rogers College of Law ( email )

P.O. Box 210176
Tucson, AZ 85721-0176
United States

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