Thursday, March 31, 2011

The Fed and AIG

Now that the economy has improved. AIG put in an offer (at 53 cents on the dollar) to buy back assets from the Fed. The Fed is instead selling them at auction to get a better deal for the taxpayer. Ironically, this could end up hurting the tax payer in May, when the Treasury tries to sell off its holdings of stock in AIG. For more read:  WSJ (3-31-2011) Fed to Sell Subprime-Mortgage Bonds From AIG Bailout )

For the curious, here is a good recap of the troubles at AIG (American International Group). Basically, AIG is a huge insurance company that in 2008 insured many supposedly safe assets for other financial institutions.  When these assets started looking risky (many were housing market related), it became clear that AIG would not be able to make good on all its insurance payouts. Had AIG failed, it would have taken much of our financial system with it. Hence, AIG was "too big to fail".

Falling Giant: A Case Study Of AIG by Gregory Gethard

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