Aig in Hindsight

Posted: 15 Jul 2021

See all articles by Robert McDonald

Robert McDonald

affiliation not provided to SSRN

Anna L. Paulson

affiliation not provided to SSRN

Date Written: October, 2014

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.

JEL Classification: G22, G23

Suggested Citation

McDonald, Robert and Paulson, Anna L., Aig in Hindsight (October, 2014). FRB of Chicago Working Paper No. WP-2014-7, Available at SSRN: https://ssrn.com/abstract=3887191

Robert McDonald (Contact Author)

affiliation not provided to SSRN

No Address Available

Anna L. Paulson

affiliation not provided to SSRN

No Address Available

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
11
PlumX Metrics