This is from this morning's NY Times.
If you have any interest in the financial mess and/or are wondering why the Company wasn't put into bankruptcy, read this. Not just the excerpt - hit the link.
As the feature states, most of the AIG subsidiary companies are very solid (Full Disclosure: I have LOTS of client money in AIG insured products, and it's completely safe - regardless of the travails of the parent company), but oh, that London "financial practices" division. ...
When you start asking around about how A.I.G. made money during the housing bubble, you hear the same two phrases again and again: “regulatory arbitrage” and “ratings arbitrage.” The word “arbitrage” usually means taking advantage of a price differential between two securities — a bond and stock of the same company, for instance — that are related in some way. When the word is used to describe A.I.G.’s actions, however, it means something entirely different. It means taking advantage of a loophole in the rules. A less polite but perhaps more accurate term would be “scam.”
As a huge multinational insurance company, with a storied history and a reputation for being extremely well run, A.I.G. had one of the most precious prizes in all of business: an AAA rating, held by no more than a dozen or so companies in the United States. That meant ratings agencies believed its chance of defaulting was just about zero. It also meant it could borrow more cheaply than other companies with lower ratings.
To be sure, most of A.I.G. operated the way it always had, like a normal, regulated insurance company. (Its insurance divisions remain profitable today.) But one division, its “financial practices” unit in London, was filled with go-go financial wizards who devised new and clever ways of taking advantage of Wall Street’s insatiable appetite for mortgage-backed securities. Unlike many of the Wall Street investment banks, A.I.G. didn’t specialize in pooling subprime mortgages into securities. Instead, it sold credit-default swaps.
I have posted a few times in the last several months about AIG. Here's one of them from September, which also features a NY Times article. Good article on the collapse of AIG
The Times has done a very good job covering the AIG debacle.