Should We Have Saved AIG and Other Wall Street Banks? (Con’t)

Frank Thomas: The Rescue of AIG in 2008 was the Right Decision, Con't.

Part 3 of a multipart series,  John will give his "NO" answer in Part 4. Part 2 can be found here  by Frank Thomas and John Lawrence Was The Bailout A Success? Up to the financial crisis in 2008, AIG’s very poor risk management and operational complexity overwhelmed prudent and strictly enforced risk controls. By year-end 2008, AIG had at least a $1.8 trillion exposure in derivative liabilities from 35,000 to 45,000 separate contracts. As an insurer for 100,000 entities from retirement plans to major firms, AIG was drowning in mortgage-linked derivatives and gambling the entire house on a single pile of hedge fund-like casino debt. AIG was in effect insuring the banks against the default of their borrowers. Thus, it was in essence using CDS derivatives to speculate on the value and credit risk of the underlying mortgaged assets.