The US Federal Reserve bails out AIG with almost $100,000,000,000 as its stock value crumbles. But what has brought this giant of insurance down? The answer appears to be that the value of AIG’s investments known as Credit Default Swaps (CDS), apparently these are supposed to be a form of insurance policy (AIG’s business is insurance) against bad debt.
At the end of last year concerns were being expressed that the value of these insurances were grossly overestimated resulting in a write down of $4.88 billion.
It seems that not only was AIG’s insurance risk assessment lacking but their Crisis Management Services just wasn’t up to the job either.
Over the last couple of decades companies like AIG have charged huge fees, and paid themselves massive bonuses, for advising on, and selling derivative investments like Credit Default Swaps.
Today many suspect these derivatives are worthless.